EURJPY appears to be retracing from its recent rally earlier in the month, as price has found resistance near the 141.00 major psychological level and pulled back to the 139.00 area.

A deeper pullback could last until the 61.8% Fibonacci retracement level, which is close to the 138.00 major psychological support and a former resistance level.

Stochastic is already moving out of the oversold zone, hinting that buying pressure is ready to pile back on. This could push EURJPY back to the previous highs or at least until the 140.00 major psychological level.

However, a break below the 138.00 area of interest could be a sign that further losses are in the cards, which could take EURJPY back to the next support near 136.00. This might depend on the event risks lined up from both Japan and the euro zone this week, with another slew of weak data expected from both nations. Take note that the ECB is set to have its interest rate decision this week as well.

Going long at 138.00 with a stop around 137.00 and a target of 141.00 could yield a 3:1 return-on-risk. Aiming for new highs could improve the reward ratio but it would be prudent to have a trailing stop once price tests the previous highs.

By Kate Curtis from Trader’s Way