EURJPY is edging higher as it appears ready to retest the 16-year high of 157.99. The move prior to the July 28 BoJ meeting has been almost completely erased with the bulls confirming their dominance in this market. However, they have yet to make a new higher high, thus giving some hope to the bears that the recent series of lower lows and lower highs could still play a role.
Turning to the momentum indicators, the overall picture does not look overly supportive of the bulls’ intention. In more detail, the Average Directional Movement Index (ADX) continues to hover well above its 25-threshold, signaling a trendless market, and the RSI has just edged above its midpoint. More importantly, the stochastic oscillator is trading sideways, a tad below its overbought territory as it seems to lack the strength for another rally. Crucially, there is a growing risk of a bearish divergence forming if EURJPY fails to make a new higher high soon.
Should the bulls ignore the muted signs, they would aim for a break of the 16-year high at 157.99. Such a move though is bound to energize the EURJPY bears and reignite the intervention talk from the Japanese authorities. The bulls could then set their eyes on an even bigger prize, the February 22, 2007 high at 159.64.
On the other hand, the bears are desperately trying to recoup part of their recent losses. They appear keen on a move below the March 24, 2024 upward sloping trendline and towards the busy 154.74-155.05 area, which is populated by the June 23, 2023 low and the 50-day simple moving average (SMA). If successful, they could then have a look at the July 28 low, which is a tad below the January 22, 2008 low of 152.11.
To sum up, EURJPY bulls feel confident following the recent upleg but a potential failure in making a higher high would gradually open the door to a sizeable correction, assisted by a developing bearish divergence.
