EUR/JPY creates bullish outside day on hawkish turn in ECB expectations

• Hawkish ECB expectations put a bid under the common currency.
• Bullish outside day candle suggests a bottom in place but awaits bull reversal confirmation.

The common currency posted gains across the board on Mondy after Reuters reported that some of the doves at the European Central Bank (ECB) have a had a change of heart of late and are calling for an end of QE program this year.

Consequently, EUR/JPY jumped more than 100 pips to a high of 131.07 and created a bullish outside day candle, i.e. the price action engulfed the high and low of the previous day.

The candlestick pattern suggests the bear grip has weakened and a positive follow-through today would confirm a bearish-to-bullish trend change. A similar candlestick pattern was created on March 5 and had yielded a rally to 132.44 (March 13 high).

As of writing, the pair is trading at 131.10. A better-than-expected German Zew survey, due at 10:00 GMT, could help EUR/JPY capitalize on the previous day's bullish outside day candle. That said, the risk-averse equities may play a spoilsport by keeping the Yen well bid against majors.

EUR/JPY Technical Levels

A break above 131.21 (21-day moving average) would expose the ascending 200-day MA located at 131.71 (200-day MA) and 131.76 (30-day MA). On the other hand, a close below 130.52 (March 8 low) would pour cold water over the optimism generated by yesterday's bullish outside day candle and allow a stronger pullback to 130.00 (psychological level) and 130.73 (previous day's low).