The Euro managed to gain bids against the Japanese yen during this past week, as it traded as high as 139.18. However, the EURJPY pair opened this week on a negative note, as the pair broke an important support level, which might cause heavy downside in the pair moving ahead.
The Euro buyers look like nervous, as it was also seen trading lower against the US dollar. The EURUSD pair is trading below the 1.2940 level, down from the intraday high of 1.2968. So, if the Euro sellers gain control, then it might cause more downside in the EURJPY pair in the near term.
The main reason why more downside is likely in the EURJPY pair is because it has breached an important bullish trend line on the hourly chart. Currently, the pair is heading towards the 23.6% fib retracement level of the last leg from the 135.81 low to 139.18 high. However, it looks like the pair might test the 100 hourly moving average, which is siting just above the 38.2% fib retracement level. The most critical support would be around the 50% fib level, which also coincides with the 200 hourly moving average. So, if the EURJPY pair moves closer to the mentioned confluence area, then it is likely that the Euro buyers might take a stand to protect further downside in the pair.
Alternatively, if the pair bounces from the current levels, then the broken trend line might act as a resistance, followed by the previous high of 139.18.
Overall, selling rallies looks like a good option as long as the pair is trading below the last high and the hourly RSI is below the 50 mark.
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Posted By Simon Ji of IKOFX
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