The EUR/JPY posted humble gains today, but I’m not confident that it could reach new highs as the Nikkei stock index is somehow expected to drop further in the upcoming period. The JP225 is under massive selling pressure, a further drop will force the Yen to take the lead and to dominate the currency market.

The currency pair is still located in the buyer’s territory on the Daily chart, but a Nikkei’s further drop will send the pair into agony. However, is premature to talk about a larger drop as long as the rate is located above two very important dynamic support levels. The rate could drop further because it could be attracted by a confluence area.

The Yen decreased a little today also because the Japanese data have disappointed in the morning, the Current Account  decreased from 1.70T to 1.48T, has come in much below the 1.66T, the Bank Lending increased by 2.4%, matching expectations, but the Economy Watchers Sentiment dropped from 53.9 to 49.9 points, even if the specialists have expected to see a drop only to 53.7 points.

On the other hand, the Euro increased even if the German Trade Balance has disappointed today, the surplus dropped unexpectedly lower, from 22.3B to 21.4B, below the 21.5B estimate.

The rate made a false breakout above the 23.6% Fibonacci level and above the 150% Fibonacci line (ascending dotted line), so the current drop is natural and expected after another failure to approach and reach the median line (ml) of the blue ascending pitchfork and the first warning line (WL1) of the red ascending pitchfork.

It could be attracted by the confluence area formed between the lower median line (lml) of the blue pitchfork with the upper median line (UML) of the red pitchfork. A valid breakdown will accelerate the sell-off, while a rejection will bring us a great buying opportunity.