EUR/JPY traded higher yesterday after hitting support at 127.50. However, the recovery stayed limited near the 128.60 territory, where the rate hit resistance and retreated again. Overall, EUR/JPY continues to trade below the downside resistance line taken from the high of Oct. 29, and thus, we will consider the short-term picture to be negative.
If the bears are willing to stay in the driver’s seat, we could see another test near 127.50 soon. A break lower would confirm a forthcoming lower low and could initially challenge the 127.15 barrier, marked by the inside swing high of Feb. 8, where another dip could extend the fall towards the low of the next day, at 126.45. If that hurdle cannot stop the downtrend either, we could see the sellers diving towards the 126.10 or 125.60 territories, marked by the lows of Feb. 4 and Jan. 27, respectively.
Turning our gaze to the short-term oscillators, we see that the RSI turned down again after hitting resistance near its 50 line, while the MACD, although negative, still lies above its trigger line. Both indicators detect downside speed, which supports the notion of further declines. Still, the fact that the MACD remains above its trigger line makes us careful over another bounce before the next negative leg.
Nonetheless, to start examining the bullish case, we would like to see a strong rebound above 129.50. The rate will already be above the aforementioned downside line, and we could see a test near the round figure of 130.00 or the 130.20 zone, marked by the high of Nov. 19 and 12, respectively.
If the bulls are unwilling to stop there, we could see them targeting the 130.60 obstacles, marked by the high of Nov. 15, the break of which could extend the advance towards the peak of Nov. 8, at 131.45.