EURJPY recently broke out of its descending channel pattern, signaling a reversal from the selloff. Price reached a high of 122.83 before showing signs of a pullback, and applying the Fib tool on the latest swing high and low shows that the 38.2% retracement level is closest to the broken resistance.
If this holds as support, the pair could head back up to the swing high or higher. A larger pullback could last until the 50% Fib at the 120.50 minor psychological level or at the 120.00 major psychological mark. A break below these levels could put the pair back on a downtrend.
The 100 SMA is still below the 200 SMA so the path of least resistance might still be to the downside. However, the gap between the moving averages is narrowing to show a pending upward crossover, which could draw more buyers to the game. Stochastic is already indicating oversold conditions, which means that selling pressure is exhausted and that buyers could regain control.
The euro seems to be correcting from its post-ECB run, during which Governor Draghi’s remarks during the presser indicated that the central bank is no longer considering further easing. He said that there is no more urgency to increase stimulus as deflationary risks are lower.
However, the shared currency is also reeling from political uncertainty as French election updates revived “Frexit” concerns. Le Pen has led in the polls against Macron and presidential favorite Fillon is currently under formal investigation for allegedly diverting public funds.
Meanwhile, the Japanese yen is awaiting the BOJ interest rate decision this week and any dovish remarks could push the currency back down. On the other hand, a shift to a less dovish tone could also mean gains for the lower-yielding currency. Changes in bond yields after today’s FOMC statement could also push yen pairs around.
By Kate Curtis from Trader’s Way