EURJPY Channel Pullback (Aug 02, 2016)

Price seems to be finding support at the bottom of the channel and could be due for another test of resistance.

Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level lines up with the channel resistance around 115.75. This is also near the moving averages, which could hold as dynamic resistance levels. Speaking of moving averages, the 100 SMA is still below the 200 SMA so the path of least resistance is to the downside.

Stochastic is still on the move up and hasn't reached the overbought zone so there might be some buying pressure left to push for a correction. Once the oscillator reaches the overbought zone and turns lower, sellers could push price back down to the previous lows at 114.00 or until the channel support around 113.50.

Event risks for this setup are limited as only medium-tier euro zone reports are up for release. Data from the euro zone has been somewhat weaker than expected recently as a number of manufacturing PMI readings from some top economies missed forecasts. Spain's unemployment change report is due today while services PMIs are up for release tomorrow.

As for the yen, the Japanese currency has drawn support from the smaller than expected BOJ stimulus. The central bank merely increased ETF purchases instead of pumping up JGB buying and lowering interest rates further.

Apart from that, risk-off moves appear to be influencing yen action recently, propping up the lower-yielding currency against its riskier counterparts. Falling crude oil prices have been partly responsible for the return in risk aversion, along with the weaker than expected US GDP report released last Friday.

By Kate Curtis from Trader's Way