EURJPY has formed lower highs and found support around the 122.65 level, creating a descending triangle pattern on its 1-hour chart. Price looks prime for another test of support from here.
The 100 SMA is below the longer-term 200 SMA to indicate that the path of least resistance is to the downside or that support is more likely to break than to hold. The 100 SMA is also close to the triangle top to add to its strength as a ceiling in the event of another test.
Still, a break above this could lead to a move up to the 200 SMA dynamic inflection point next or a climb that’s the same height as the triangle formation, which spans 122.65 to 124.20.
RSI is cruising sideways to reflect consolidation, possibly heading in any direction from here as it remains below the center line. Stochastic is pointing up to show that bullish momentum is picking up, possibly enough to lead to a test of the triangle top around 123.00.
The euro has been on weaker footing as its central bank confirmed a dovish bias on account of weakening growth and inflation prospects. The yen, on the other hand, has been able to draw support from risk-off flows in financial markets thanks to resurfacing trade tensions.
However, the shared currency is also taking a bit of these safe-haven flows while traders remain reluctant to put their money on the US dollar. After all, the US economy is likely to take a bigger hit if retaliatory measures with China are announced as early as next month.
Talks are still ongoing but tensions are heightened after Trump threatened to impose another round of tariffs that would end their previous trade truce. A strong surge in risk aversion might still wind up putting the yen on stronger footing after all, as it tends to rally on falling global bond yields.