EURJPY has been trending higher recently, with a rising trend line connecting the lows on the 4-hour time frame. Price is moving close to testing this support area, which lines up with the 61.8% Fibonacci retracement level and the 131.00 major psychological level.
This trend line also coincides with the 100 SMA, which is above the longer-term 200 SMA to indicate that the path of least resistance is to the upside. The gap between the moving averages is widening, reflecting stronger bullish momentum.
Stochastic is also indicating oversold conditions, so sellers might take a break and let buyers regain control from here. In that case, EURJPY could make its way back up to the swing high at 134.50 and beyond.
The outcome of the German elections seems to be weighing on the shared currency at the moment due to the rising popularity of AfD and the fact that Merkel’s political party still needs to negotiate with rivals for a coalition government. But once this uncertainty is resolved, the focus could return to improving euro zone fundamentals and ECB tapering expectations.
As for the yen, the Japanese snap elections could also bring in some uncertainty and stronger support for PM Abe would mean a continuation of Abenomics, which has typically been bearish for the currency. Another factor that could impact yen price action is the shift in market sentiment stemming from North Korea tensions.
Japan is set to print its core inflation readings, along with the latest household spending, retail sales, and industrial production figures, on Friday. Upbeat reports could keep the currency supported while downbeat data could reinforce the idea of prolonged BOJ easing.
By Kate Curtis from Trader’s Way