EURJPY formed lower highs and found support at the 118.00 area to create a descending triangle on its 4-hour time frame. Price is currently testing the resistance that lines up with the 100 SMA dynamic inflection point.

This 100 SMA is below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. In other words, support is more likely to break than to hold, leading to a drop that’s around the same height as the chart formation.

RSI is on middle ground, reflecting the current consolidation, which could go on until price hits the peak of the pattern. Stochastic is heading south to show that selling pressure is in play, and the oscillator has plenty of room to head lower before reflecting exhaustion among sellers.

A break below support could set off a drop that’s around the same height as the formation, which spans 118.00 to around 120.00. Similarly, a move past the resistance around 118.50 could lead to a rally of 200 pips.

In terms of fundamentals, both the euro and yen are on weak footing as the ECB and BOJ are expected to ramp up their easing efforts. However, traders have been bearish on the euro for quite some time and the shared currency is enjoying a bit of relief on stronger PMI readings.

On the other hand, the yen just encountered a bearish push from weak inflation data released by Japan this week, reminding market watchers that the central bank is likely to boost its bond purchases soon. Still, risk aversion might stay in favor of the lower-yielding Japanese currency as the global economic outlook remains dim.

The Jackson Hole Symposium could provide a catalyst before the end of the week, and of particular interest is Fed Chairperson Powell’s speech.