EURJPY had been trading inside an ascending channel pattern and price has broken below support.

This signals that a reversal from the uptrend is underway, although additional confirmation could still be needed from technical indicators.

The 100 SMA is still above the longer-term 200 SMA on the daily time frame, which means that the path of least resistance is to the upside. This means that the rally is more likely to resume than to reverse. However, price has also broken below the 100 SMA dynamic support to indicate a pickup in selling pressure.

Stochastic is indicating oversold conditions and looks ready to turn higher, which means that buyers might be ready to prop price up once more. This could lead to a pullback to the broken channel support before the selloff resumes.

The yen was one of the top performing currencies lately as the Japanese currency is taking advantage of dollar weakness. Data from Japan also turned out stronger than expected as the industrial production figure was upgraded from 2.7% to 2.9%.

There were no major reports out of the euro zone recently, although medium-tier figures have been mostly upbeat. ECB tightening expectations are in play but traders also seem wary of currency strength and its impact on inflation.

There are no major reports due from Japan and the euro zone for the remainder of the trading week, and with Chinese markets closed for Lunar New Year festivities, market liquidity is expected to be thin. Profit-taking could be a factor as well.

By Kate Curtis from Trader’s Way