EUR/JPY Trading in a Rising Channel; Resistance Near 131

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EUR/JPY Trading in a Rising Channel; Resistance Near 131

The EUR/JPY pair is trading in a rising channel since marking a low on the year around 126.09. The 4H chart shows the market rallying above the 200-, 100-, and 50-period simple moving averages (SMAs), which are shifting from a declining slope to a flat one. The RSI has cleared above 60. This shows a market that has lost the bearish bias and momentum.

EUR/JPY 4H Chart 4/27
eurjpy 4h chart 4/27
(click to enlarge)

Now, as we start the week the market is a little bit flat, but holding above 129, which gives it a bullish bias. Even if EUR/JPY slides, as long as it holds above 128.50, the bullish channel would be intact and thus the pair would be bullish. Now in order to revive the bearish picture, the pair will have to break below the support/resistance pivot at 127.50. That would put pressure on the 126-126.10 area with risk of falling further and extending the prevailing downtrend, which we can see in the daily chart.

EUR/JPY Daily Chart 4/27
eurjpy daily chart 4/27
(click to enlarge)

Now, while the downtrend is intact in the daily chart (based on price action, moving averages and the RSI), we do see deceleration. There is a 3-pt bullish divergence between price and the RSI. This is not a good sign of reversal, but does warn us to be ready for one since bears are taking their feet off the pedal.

A break above 131 would introduce some more bullish consideration because it would clear a falling trendline and the 50-day SMA. If the RSI also pushes above 60, that would be a sign that EUR/JPY is in consolidation or bullish correction.

Still, the market might have to break above 133 in order to extend the bullish outlook to the medium-term. For now, any bullish outlook should be limited in the short-term. In fact, for now, we should respect that resistance around 131, and see a break below 128.50 (and the rising channel support in the 4H chart) as an early sign of bearish continuation.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.