EURJPY is testing its March low of 128.28, slipping just below it on Tuesday and earlier today. The pair has now retraced the entire upleg between March and June, and although the long-term uptrend that’s been in progress since May 2020 remains intact, the recently turned neutral picture in the medium term is at risk of switching to bearish.
The latest selling phase has pushed the price below both its 50- and 200-day moving averages (MA), though more signals would ideally be needed to confirm a bearish shift, such as a daily close below the 128 handle. Momentum indicators are pointing to an upward correction in the near term. The %K line of the Stochastic Oscillator is in the process of crossing above the %D line, and both being deep in oversold territory further suggests the selling pressure is about to ease. The RSI is also reversing upwards, rebounding off the 30 level, while a breach of the price beneath the lower band of the Bollinger Bands is another indication that a correction is due.
Should the immediate support area of 128.28 hold and today’s positive momentum strengthens further, buyers are likely to be challenged at the 200-day MA just above the 129 level before meeting resistance at the 78.6% Fibonacci of the March-June climb at 129.53, where the 20-day MA is intersecting it. If EURJPY is able to stretch its advances until the 61.8% Fibonacci of 130.51, this would diminish the downside risks and reinforce the neutral outlook in the medium term.
The 61.8% Fibo is also a junction point with the 50-day MA and the upper Bollinger band so a break above it could significantly bolster the bulls.
However, if today’s bounce quickly loses steam and the price skids below the 128 level, the 123.6% and 138.2% Fibonacci extensions of 126.91 and 126.06, respectively, would be the main supports to watch.
To sum up, the negative bias in the short term could be easing with several indicators pointing to an oversold market. However, a recovery towards the 50-day MA would simply shore up the neutral medium-term outlook, while a drop below 128 would turn it bearish.