EURJPY has formed higher lows and found resistance around 136.75, creating an ascending triangle on its short-term chart. Price is currently testing the resistance and might be due for a bounce.

Stochastic is on the move down to suggest that sellers have the upper hand and could take EURJPY back down to support around the 136.00 handle. This lines up with the 200 SMA dynamic inflection point that adds to its strength as support.

However, the 100 SMA is above the 200 SMA to indicate that bullish momentum is in play. This might be enough to spur an upside breakout that could be followed by a rally that’s the same height as the chart pattern or around 400 pips.

Similarly, a break below support could be followed by a selloff of the same size.

RSI has some room to climb before reflecting overbought conditions or exhaustion among buyers, so there could be more gains in the cards for EURJPY.

There are no major reports lined up from both the eurozone and Japan for the rest of the week, so any big breakouts might be spurred by swings in market sentiment. In particular, a pickup in risk aversion might favor the safe-haven yen and spur a bearish move for EURJPY.

Earlier in the week, the eurozone printed mostly downbeat PMI readings, signaling weakness in the region’s manufacturing and services sectors. Still, the German manufacturing PMI surprised with an expansion in the industry, which might be enough to keep growth supported in the near-term.

Note that the ECB is also considering reducing its stimulus efforts in order to keep inflation in check. Some officials even suggested that they could move out of negative interest rate territory soon.

On the other hand, the BOJ remains inclined to keep the yen weak since it benefits the Japanese economy.