Yesterday, the EUR/JPY rallied sharply as the yen buying took a breather and risk assets rallied. But there was little follow-though in bullish momentum and the cross has now given up its earlier advance.
The EUR/JPY’s earlier rally ran into strong resistance around the prior support level of 122.50 with the 21-day exponential moving average (EMA) providing additional resistance.
Indeed, the path of least resistance for the EUR/JPY continues to remain to the downside. All the moving averages on the daily chart point lower, objectively telling us that the trend is bearish. Meanwhile there are a couple of bearish trend lines (drawn somewhat subjectively) that are also in place.
At the time of this writing, the EUR/JPY was testing prior resistance at 121.65, a level which now needs to break down if we are to see a move towards the 120 handle. Supporting the bearish argument is the fact the RSI has broken its bullish trend line, suggesting the bearish momentum is once again gaining strength.
In contrast, a rally beyond today’s earlier highs would re-validate the bullish setup we saw yesterday (bullish engulfing candle), in which case a rally at least towards the bearish trend line would then become likely.