EUR/JPY might be in for a short-term turn back to the downside as buyers run into an area of previous strong resistance.
EUR/JPY Short-term Resistance?
On the four hour chart above of EUR/JPY, we’ve got a simple technical setup in the works as the pair retests an area of strong interest for both the bulls and the bears.
The 129.50 minor psychological level was a very strong resistance area in early March during a tight consolidation period, then a point of both support and resistance mid-March. Now it seems that the bulls can’t break to the upside as this area is retested once again, likely to draw in more sellers the longer it holds.
Fundamentally, we don’t have a major catalyst scheduled for either currency in the near term, so it’s likely broad risk sentiment and covid developments will weigh on the pair for now. And with Europe back in lockdown mode as the fourth wave hits, and bond yields rising to take some air out of risk-on trades, the odds are rising that the 129.50 area will hold for bears once again.
Currently, we’re seeing a bearish reversal candle forming on the four hour chart as stochastic is signaling overbought conditions. If that candle remains bearish as it closes and risk sentiment continues to lean negative (likely supporting the yen short-term), then traders may want to consider a short position to play global risk aversion sentiment and European lockdown concerns.
In the short-term, the pair could make it down to the previous swing low around 128.50, and if it does, that solidifies the downside break of EUR/JPY’s rally from 126.00 at the start of 2021 to over 130.00 in March, which could draw in longer-term players to sell or take profits.
What do you all think? Are you watching EUR/JPY for a move lower? Do you think the rally is done for now? Let me know in the comments section below!
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