EURJPY is eying the formation of a potential bearish head and shoulder pattern, with a head at 127.06 and a neckline around 124.40, hinting that the rally may be losing steam and it’s time to reverse south.
The slowdown in the 20-day simple moving average (SMA) and the negative cross between the red Tenkan-sen and the blue Kijun-sen lines for the first time since June is another warning that downside pressures may dominate in the short-term. Meanwhile, the RSI is struggling to gain ground above its 50 neutral mark. Hence, the short-term bias is currently viewed as neutral-to-bearish overall.
A clear break below the 124.40 neckline, where the 50-day SMA is currently hovering, would confirm the completion of a trend reversal pattern, likely stimulating a more aggressive sell-off towards the 123.00 support region. Beneath that, the spotlight may turn to the 122.00 barrier.
Otherwise, if the price manages to hold above the neckline, and manages to rebound near the 125.30 number, which is also the 23.6% Fibonacci of the 119.30-127.06 upleg and a key floor over the past three sessions, the focus would shift to the 126.40 high from September 10. A clear violation of this point could see the retest of the 127.00 peak. If the bulls claim that resistance too, the long-term outlook would turn brighter, with the pair likely heading next for the 129.00 barrier.
Summarizing, EURJPY could trade neutral-to-bearish in the short-term. A drop below the 124.40 level could give full control to the bears, likely signalling the start of a downtrend.