EUR/JPY traded lower during the European morning Tuesday, after it hit resistance around 20 pips above the 128.60 hurdle on Monday. The rate continues to trade below the downtrend line taken from the peak of the 2nd of February, which keeps the medium-term picture somewhat negative in our view. Nevertheless, in the short run, the rate is trading above an upside support line drawn from the low of the 29th of May, and thus, we will stay sidelined with regards to the near-term outlook for now.
We would like to see a clear dip below that short-term line and the 127.25 support before we assume that the bears have taken the driver’s seat again. Such a dip could initially aim for the 126.65 hurdle, defined by the low of the 19th of June. In order to get confident on larger bearish extensions though, we would prefer to wait for a move below 126.30. Such a dip is possible to set the stage for the low of the 29th of May, near the 124.70 zone.
Looking at our short-term oscillators, we see that the RSI turned down and fell back below its 50 line, while the MACD, although slightly above both its zero and trigger lines, is pointing sideways. It could also turn south soon. These indicators suggest that the pair may continue trading lower for a while, at least until it tests the aforementioned upside support line or the 127.25 support level.
On the upside, a clear move above 128.60 could pave the way for the 129.55 resistance or the medium-term downtrend line taken from the peak of the 2nd of February. That said, even if this is the case, we would still consider the medium-term picture to be somewhat negative as the bears may take advantage of the rate’s proximity to the downtrend line.
We would like to see a clear and decisive break above 130.30 before we turn positive. Such a move is likely to initially target the 131.35 area, marked by the highs of the 14th and 22nd of May. Another break above that zone could open the path towards the 132.00 territory.
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