EUR/JPY Technical: Bulls may have reached a key bearish reversal zone

• The 9-month rally seen in the EUR/JPY has reached a key major resistance zone of 158.55/159.80.
• Several technical elements have started to hint at signs of bullish exhaustion where the next potential movement may be a multi-day to multi-week bearish mean reversion/counter-trend within a major uptrend phase.
• The short-term resistance and support will be at 158.55 and 155.90 respectively.

Since the start of the year, the EUR/JPY has rallied by 16.30% (2,239 pips) from its 2 January 2023 low of 137.39 to a recent high of 159.77 printed on 30 August 2023 within a major uptrend phase in place since March 2022 low of 124.39.

In the lens of technical analysis, directional price movements do not move in a vertical fashion forever, but instead, they oscillate within a longer-term trend. Also, such oscillations can be relatively more significant than the others because of the emergence of bearish momentum or bullish momentum at key resistance or support levels therefore in turn leading to potential significant mean reversion/counter-trend movements that go against the impulsive movements of the longer-term trend phases for a certain period.

The EUR/JPY is likely to be in transition to a potential multi-day to multi-week bearish mean reversion movement within a longer-term major uptrend phase that is still intact since the March 2022 low of 124.39.

Weekly indecisive price actions with bearish momentum

Fig 1:  EUR/JPY major trend as of 18 Sep 2023 (Source: TradingView, click to enlarge chart)

As seen in the weekly chart of EUR/JPY, the recent price actions since the middle of August 2023 have formed a series of “Spinning Top” candlestick patterns which has implied some form of hesitancy by the prior bullish tone.

This set of “indecisive” behaviour has taken place right at a key resistance zone of 158.55/159.80 which is defined as the upper boundary of the major ascending channel in place since March 2022, the February/March 2008 congestion area, and a Fibonacci extension cluster.

In addition, the weekly RSI has formed a bearish divergence condition at its overbought zone which indicates a potential emergence of medium-term bearish momentum.

Shorter term price actions have broken below the 20-day moving average

Fig 2:  EUR/JPY minor short-term trend as of 18 Sep 2023 (Source: TradingView, click to enlarge chart)

In the shorter term as seen on the 1-hour chart, the EUR/JPY has started to oscillate within a minor descending channel and below the 20-day moving average since last Thursday, 14 September.

These latest set of short-term price movements have indicated that EUR/JPY is likely to be evolving within a minor downtrend. Watch the 158.55 key short-term pivotal support for a further potential slide to retest the 11/15 September minor swing low areas of 156.80 and a break below it exposes the next intermediate support at 155.90 (lower boundary of the minor descending channel, 4 August 2023 minor low, and a Fibonacci extension cluster).

However, a clearance above 158.55 invalidates the bearish tone for a squeeze up to retest the upper limit of the major resistance zone at 159.80.

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