EURJPY Double Top Pullback (Sept 24, 2015)

However, the pair enjoyed a bit of relief rally in recent trading sessions, allowing price to pull back to the broken neckline.

Using the Fib tool on the swing high and low on the 1-hour chart shows that the 50% retracement level lines up with the double top neckline around the 135.00 major psychological mark. This is also close to the moving averages, which might hold as dynamic resistance levels.

The 100 SMA is below the longer-term 200 SMA, which suggests that the downtrend could resume later on. In addition, both stochastic and RSI are moving down from the overbought zone, reflecting a pickup in selling momentum and indicating a potential drop back to the previous lows at 133.25 or lower.

Data from the euro zone turned out surprisingly positive yesterday, with the PMI readings coming in closely in line with expectations. France even printed a stronger than expected manufacturing PMI, which jumped to 50.4 and indicated industry expansion. Overall, the region's PMI figures showed a bit of weakness, but not weak enough to revive Draghi's dovish tone.

In his testimony, ECB head Draghi clarified that they need more time and evidence to gauge if further easing is necessary. He even expressed an upbeat view on inflation, citing that price levels could pick up before the end of the year. This was followed by an optimistic speech from German central bank head Jens Weidmann who noted that the expansive monetary policy cannot be sustained.

Event risks for this trade today include the release of Germany's Ifo business climate index, which is expected to slump from 108.3 to 107.8. The country's GfK consumer sentiment index is also due today and this might show a drop from 9.9 to 9.8, reflecting weaker optimism. Weaker than expected data could renew selling pressure for the euro while strong figures could spur more gains.

Earlier today, Japan reported a weaker than expected flash manufacturing PMI of 50.9 instead of the projected 51.3 figure. This is also lower than the previous 51.7 reading. Later today, the ECB's targeted LTRO will be implemented, potentially putting downside pressure on the euro again.

By Kate Curtis from Trader's Way