The ECB (European Central Bank) met last Thursday. From the ECB President’s statement, it was clear that the central bank is in control of the situation and is prepared to take additional measures to slow inflation – but not to hinder an economy returning to pre-pandemic levels.
- EUR impressed by ECB
- EUR/JPY in a bearish outside bar
- live trading from Monday to Friday
The market took the statement quite euphorically and the EUR strengthened against most currencies, including the USD by nearly 200pips.
On Monday, Mrs Lagarde answered questions from the EU parliamentary committee and somewhat cooled financial market expectations of imminent rate hikes this year following Thursday’s conference. There will be hikes, but not necessarily in the first half of the year.
A slight cooling of the bullish mood on the EUR could already be seen yesterday. On most EUR pairs slightly bearish signals appeared.
On EUR/JPY, yesterday’s daily candle was downward and included Friday’s candle in its range, forming a bearish outside bar.
Despite the fact that a bearish engulfing is usually a signal for a downtrend, in view of last week’s strong upward impulse we should consider the possibility of a breakout from the formation in both directions.
Following the principles of the PA+MACD strategy, I am holding from taking positions until the market decides to take either direction. If a downward breakout occurs and the MACD establishes a maximum and begins to decline – this will be an opportunity to sell, further supported by downward divergence.
An upward breakout may direct the price to the resistance of the downward channel in which the pair has been moving since May 2021.
On the H1 chart the pair looks very bullish, so despite the fact that the price is in the bullish engulfing formation, declines are not a foregone conclusion.
The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
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