EUR/JPY technical analysis: Key falling trendline violated but trade tensions may cap upside

• EUR/JPY closed above key falling trendline on Tuesday, validating the bullish divergence of a 4-hour chart indicator.
• A corrective rally, however, may remain elusive, courtesy of trade tensions.

EUR/JPY closed at 123.31 on Tuesday, confirming an upside break of the trendline connecting April 17 and May 2 highs.

The upside break of the falling trendline coupled with the 4-hour chart relative strength index’s (RSI) move above 50.00 has opened the doors to 123.89 (23.6% Fib R of 126.81/122.08).

The rally to 123.89, however, could be preceded by a fall back to 123.00, as reports that the Trump administration is planning to blacklist a major Chinese surveillance technology firm are seen inflaming trade tensions, leading to a minor rally in the anti-risk Japanese Yen.

That said, the prospects of a corrective rally to 123.89 would weaken only if the cross finds acceptance below the previous day’s low of 122.68.

Daily chart

4-hour chart

Trend: 30-pip drop likely before a corrective rally

Pivot points