EURJPY staged a strong rally after bouncing off the key 130 level on Monday to reach a high of 132 today, a level not seen since January 2016. Upside momentum stalled as the market became overbought. This was indicated by the RSI reaching above 70.
Technical studies on the 4-hour chart are supportive of a bullish outlook. The Tenkan-sen and Kijun-sen lines are positively aligned while the market is above the Ichimoku cloud. MACD is in bullish territory above zero and is rising. RSI is also positive, although at overbought levels. This points to the risk of a move lower in the near term.
Upside pressure has weakened and EURJPY is now capped at the key 132 level which will prove challenging to breach. A sustained move above this resistance would see a resumption in the uptrend and will open the way towards 134.50.
Immediate risk is tilted to the downside with 131.16 being a support level ahead of the key 130 level. Below this, the September 6 low of 129.36 would be a target ahead of 128.32 and 127.55.
The broader trend higher in EURJPY remains intact and is well-supported by a bullish alignment of short and medium-term trend indicators but immediate risk is to the downside.