EURJPY is currently testing the descending channel support visible on the daily time frame.

A bounce could take it back to the channel resistance near the 131.00 major psychological mark, which might be enough to let the downtrend resume.

Drawing the Fibonacci levels based on the latest swing high and low shows that the top of the channel lines up with the 61.8% Fib and an area of interest. It is also around the 100 SMA, which is below the 200 SMA, indicating that the downtrend is likely to carry on.

Stochastic and RSI are on the move up, which means that euro bulls are in control of price action for now. However, stochastic is already nearing the overbought zone, suggesting that buying pressure could fade soon. RSI is still close to the middle so there’s enough room for a large correction.

Event risks for this setup include the release of euro zone CPI estimates and the BOJ statement on Friday. While the ECB has already expressed its bias for adding to its stimulus program by March, the BOJ remained confident that the Japanese economy can stay resilient and meet its inflation targets.

However, some analysts believe that the BOJ might sound more dovish in this week’s monetary policy statement since data from Japan continues to disappoint. Another set of inflation and spending reports are up for release just before the BOJ statement, giving more clues on what the central bank might announce.

As for the euro zone, negative CPI estimates could confirm that the ECB is on track to ease in March. Stronger than expected figures, on the other hand, could keep the shared currency supported.

By Kate Curtis from Trader’s Way