EURJPY Triggers Large Bearish Pattern on Coronavirus and Possible ECB Rate Cut

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Yesterday, the Euro slid below its 2019 low of 1.0877 against the US Dollar, and the break to the low might lead to lower lows in the weeks ahead. However, while I think the EURUSD might slide to 1.0737, the price is also oversold, and the risk-reward ratio for new positions is not good.  Instead, I find the EURJPY more interesting. Also, it is a play for bearish traders that think stock markets will head lower on the shutdown of China or valuation being too high. It is also a play on the ECB reducing interest rate because of the coronavirus crisis.

Analysts at Credit Suisse anticipate the ECB to reduce interest rates in the second quarter of 2020, as they think it will take time for China to restart their economy, and that this will affect Germany.  The first signs of weakness should show in the Eurozone manufacturing PMI in the next few months, and they mention automakers in Europe, Japan, and South Korea already announcing the potential suspension of production.

As for the Coronavirus panic, it is still stopping most factories to re-open, and on February 13, the number of confirmed coronavirus cases leaped higher by 15,100 new cases. That was a daily growth of 33.7%, and if the growth rate remains above the 20% mark in the next few days, then it could cause investors to turn bearish once again.

 

Daily Change in Coronavirus Cases

 

From a technical perspective, the pair triggered a bearish head and shoulders pattern on February 13. The left shoulder is the December 2 high, while the right shoulder is the February 5 high, and the head is the January 16 high.   The difference between the neckline, that goes via the December 9 and January 30 lows, and the head of the pattern, suggests that the price might be able to trade as low as 116.73. The pattern will remain in place as long as the price trades below the 120.40 level, which is a level just above the February 12 high.

 

EURJPY Daily Chart

 

By Alejandro Zambrano, Editor In Chief at Investingcube.com, and Chief Market Strategist at ATFX.

 

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