If only technical analysis was all we needed. Even the combination of sentiment and TA would be enough under normal conditions. Unfortunately, fundamentals can trump all other analyses and sway short term sentiment and smash through technical levels. This is why we try and take a holistic view and try and work out a different scenario based on certain events happening.
Forex Analysis - EURJPY
It is not often that I look to trade with the crowd as I find it easier to be a contrarian. This generally serves me well as 80% of retail traders are wrong. Which is a lot.
On the ActivTrader platform, they have a sentiment indicator that shows 76% of traders shorting the EURJPY. At these levels of bearishness, I am looking to buy the dip off support, but at the moment that may not be the best idea. For now.
The higher time frame charts would support my initial instinct though, as the price action is above the 20, 50 and 200-period EMAs on the monthly and weekly time frames. In fact, the current range that has been traded for a year now is a product of waiting for the short term momentum as seen in the bullish cross of the monthly 20 & 50 EMAs compressing under the 200-period EMA. A punch up to 136.00 in the price action would see the 20, 50 and 200 align to the upside and I think we can move on higher to the 144.95 level. For now, the 129 and the 200-period EMA on the monthly chart is support as far as I am concerned.
The weekly time frame shows the range a lot clearer and this time the 50-period EMA is the key dynamic support. The bullish impulsive drive in the last week of January, flipped the momentum and price action to be bullish, hence why I would usually be very keen to buy a dip and ride a long trade to the 135-136 zone.
Drilling down into the daily time frame and the 200-period EMA, the 129.50 and the filling of the imbalance created on February 3rd 2022 would be the ideal place to buy the EURJPY.
What is holding me back from being happy about this trade is that there is a very loud and growing, warmongering rhetoric growing in the press. Which would essentially be the first war on European soil for several decades. And possibly the start of World War 3. I personally don't think it will happen and that a 11th-hour deal will be signed and everyone can get on with being distrustful but cooperative again. However, the markets hate uncertainty, so until we move past this episode with some sort of political resolution, the euro is vulnerable and the yen is the go-to safe place. This means we should be on the defensive, for now, keeping our powder dry and waiting for price action to once again flip to being bearish. Again, not my base case scenario. If in doubt, just stay out and wait for market generated information to give you a clear signal of rejection. Keep your eyes and ears peeled for some sort of truce or at least agreement between the heads of Russia, Europe and NATO.