EUR/JPY has been in a sliding mode since Monday, when it hit resistance near the 122.80 barrier, also marked by Friday’s high. Yesterday, the rate dipped below the key support of 122.15, defined by the low of May 23rd, and continued south for a while more. The move confirmed a forthcoming lower low on both the 4-hour and daily charts, which, combined with the fact that the rate is also trading below all three of our moving averages, paints a negative near-term picture in our view.
We believe that the bears will take charge again soon and perhaps pull the trigger for declines towards the 121.30 area, which is the low of January 3rd. However, before the next negative leg, we see a chance for the rate to rebound a bit, perhaps to test the 122.15 zone as a resistance, or the 122.45 hurdle. Even if it travels somewhat higher, as long as it stays below the tentative downside resistance line drawn from the high of April 17th, we would stick to our bearish stance.
Taking a look at our short-term oscillators, we see that the RSI drifted lower, hit support slightly below 30, and then it ticked up. The MACD lies below both its zero and trigger lines. Both indicators detect downside momentum, but the fact that the RSI ticked up from near 30 enhances our view for a small corrective bounce before, and if, the bears decide to take the reins again.
In order to start examining a bullish short-term reversal, we would like to see a decisive recovery above 122.80. This would also bring the pair above the aforementioned tentative downside line and may pave the way towards the 123.45 barrier, marked by an intraday swing high formed on May 22nd. If that level fails to force the bulls out of the field, then its break may allow extensions towards the high of May 21st, at around 123.75.
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