EUR/JPY dropped significantly in the in the last hours and erased the morning gains. Price drops even if the Nikkei stock index has rallied today and has reached fresh new highs. The pair show exhaustion signs again, remains to see what will really happen because the perspective remains bullish on the Daily chart.

The rate is still located above crucial support levels, that’s why is hard to talk about a larger drop at this moment and because the Nikkei stock index is still expected to reach fresh new highs. We may have a significant drop only if the rate will fail to climb and close above the 136.62 previous high and if the JP225 will turn to the downside again.

The Yen increased versus the Euro even if the Japanese data have come in mixed, the PPI increased only by 3.1%, less versus the 3.3% estimate and versus the 3.6% in the former reading period, while the Tertiary Industry Activity rose by 1.1%, beating the 0.4% estimate.

I’ve added the JP225’s chart to show you what are the perspectives for the upcoming period. The rate failed to retest the lower median line (lml) of the ascending pitchfork and now could try once again to approach and reach the 50% Fibonacci line (ascending dotted line). Only another failure to reach the mentioned resistance line will signal a potential drop on the short term, which will force the Yen to dominate the currency market again.

The rate failed to stay above the broken 50% Fibonacci line (ascending dotted line), but it could still close the day above it if the Nikkei will increase further. However, a false breakout followed by a 50% line retest will signal a drop towards the upper median line (UML) of the major red ascending pitchfork and towards the lower median line (lml) of the minor blue ascending pitchfork. A valid breakout above the 23.6% will confirm a further increase.