EUR/JPY traded lower during the Asian morning Monday, after preliminary results of the Italian election pointed to a hung parliament, with a strong showing of the Eurosceptic, anti-establishment parties Five Star Movement and Northern League. The fact that in Germany, the SPD vote results showed that the party agreed on a “grand coalition” with Merkel’s CDU was not enough to wake up the pair’s bulls.
The rate continues to trade within a downside channel, that’s been containing the price action since the 7th of February, and below all three of our moving averages, which point south. All these suggest that the short-term outlook is to the downside. A decisive dip below the 129.35 support and the lower bound of the aforementioned channel is possible to see scope for extensions towards our next support hurdle of 128.00.
Having said that though, our short-term oscillators suggest that a corrective rebound may be on the cards before, and if, the bears decide to seize control again. The RSI rebounded from near its 30 line, while the MACD, although negative, lies above its trigger line and points north. What’s more, there is positive divergence between the RSI and the price action.
However, as long as such a rebound remains limited below the crossroads of the 130.90 resistance, which currently coincides with the 50-EMA, and the upper bound of the downside channel, we see a decent likelihood for the bears to take charge again soon. We would like to see a clear break above the crossroads before we start examining the case of a short-term reversal to the upside. Such a break is possible to see scope for upside extensions towards our next resistance of 132.15.