EUR/JPY Price Analysis: Trapped around 136.50-138.00, as a head-and-shoulders looms and targets 130.00

• The EUR/JPY recovers some ground but remains defensive as a head-and-shoulders pattern, put a lid on higher prices.
• Market sentiment is positive, though it is worth noting that China’s Covid-19 battle could outweigh risk appetite and shift sentiment negatively.
• EUR/JPY Price Forecast: The head-and-shoulders clouds the prospects of a higher EUR.

The EUR/JPY remains trapped in the 136.50-138.00 range for the third consecutive trading session, though it snaps two days of successive losses and prints decent gains of 0.19% in the North American session. At 137.01, the EUR/JPY reflects a positive market sentiment across the board.

Global equities pushed higher on Tuesday, while bond yields rose, except for US Treasuries. In the commodities segment, precious metals rise, and crude oil falls. China remains under pressure as the Covid-19 outbreak lasts longer than foreseen, as Shanghai authorities could reinstate stricter measures again. Furthermore, Fitch Rating cut China’s growth prospects from 4.8% to 4.3% amidst the zero-tolerance program imposed by Beijing.

Meanwhile, the EUR/JPY remains capped by the EUR/USD major’s action, which remains confined to the 1.0500-70 range, ahead of a crucial Fed monetary policy meeting.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY remains threatened by a head-and-shoulders chart pattern in the daily chart. Although it could be invalidated, once the EUR/JPY pushes above 140.00, that scenario is unlikely as central banks linked to them remain accommodative. Also, the JPY’s presence in the cross leaves it subject to market sentiment, which could send the pair lower if it turns negative.

With that said, the EUR/JPY first support would be the 137.00 mark. If EUR/JPY bears break that level, that will expose the 136.00 figure, followed by the head-and-shoulders neckline around 135.00-20.

Key Technical Levels