EUR/JPY traded higher overnight after it hit support near the 130.55 level. However, during the European morning Wednesday, it found resistance fractionally below 131.15 and then, it retreated again. On the 27th of July, the rate rebounded from near the upside support line drawn from the low of the 19th of June and accelerated to the upside yesterday, following the BoJ’s decision to keep its monetary policy ultra-loose. Therefore, we would consider the short-term outlook of this pair to be positive for now.
If the bulls manage to take charge from current levels, then we would expect them to aim for another test near 131.15 and if they manage to overcome it, we may experience extensions towards our next resistance hurdle of 131.50. Another break above 131.50 could set the stage for the peak of the 17th of July, at around 132.00.
Taking a look at our short-term oscillators though, we see the likelihood for the pair to continue correcting lower for a while more before the bulls decide to shoot again. The RSI turned down after it hit resistance near its 70 line, while the MACD, even though above both its zero and trigger lines, shows signs of topping.
We believe that the setback may challenge the 130.55 or the 130.30 support barriers, but if neither of these levels appears attractive to buyers, then the pullback may continue towards the 129.75 area, or the aforementioned upside line. That said, even if this is the case, we would still see a decent chance for a rebound. The pair would still be trading above the upside support line. We would like to wait for a decisive dip below that line before we abandon the bullish case. Such a dip could initially pave the way towards 129.15. Another dip below 129.00 could confirm a forthcoming lower low on the 4-hour chart and is possible to carry more bearish extensions, perhaps towards the 128.50 territory.
