EURJPY recently broke below support around the 114.00 major psychological level then dipped close to the 112.00 mark before pulling up. Applying the Fib tool on the latest swing high and low shows that this broken support and area of interest is between the 38.2% and 50% Fibonacci retracement levels, which might keep further gains in check.
The 100 SMA is above the 200 SMA on this 4-hour time frame, though, which means that the path of least resistance is still to the upside. The gap between the moving averages is narrowing so a downward crossover might be imminent, possibly signaling a buildup in bearish pressure. In addition, the 200 SMA lines up with the 50% Fib and area of interest, possibly acting as dynamic resistance.
Stochastic is on the move up to show that buyers are in control of price action for now. This suggests that the correction could carry on until reversal candlesticks form or the oscillator reaches the overbought zone to show bullish exhaustion.
Japanese banks were closed for the holiday yesterday so traders likely booked profits after the BOJ statement earlier in the week. The central bank announced some adjustments in its monetary policy goals, shifting towards targeting the yield curve and sharing plans for more aggressive stimulus. Earlier today, Japan reported a strong flash manufacturing PMI reading, which is up from 49.5 to 50.3 in September instead of falling to 49.3.
As for the euro, there were no major reports out of the region yesterday although the LTRO showed a drop from 399.3 billion EUR to just 45.3 billion EUR, reflecting a lower value in the long-term loans issued to banks. Euro zone flash PMI readings are due today and small declines in the manufacturing and services sectors of Germany and France are expected.
By Kate Curtis from Trader’s Way