EURJPY might be done with its recent downtrend, as a short-term reversal pattern formed on its 1-hour time frame. 

A double bottom can be seen, with price currently testing the neckline of the formation.

Moving averages have also narrowed, indicating that a potential crossover might take place. If so, this could confirm that an uptrend is likely to take place. Stochastic is moving up, reflecting the presence of buying pressure at the moment.

The neckline of the chart pattern is located at the 129.00 major psychological level. If price does break out, it could head higher by as much as 200 pips, which is roughly the same height as the formation. On the other hand, if the neckline holds as resistance, price could form another bottom near the 127.00 major psychological support.

The path of least resistance is to the downside, as the ECB is currently implementing its quantitative easing program, which is set to carry on for the next 18 months. On the other hand, the BOJ has just refrained from announcing additional easing efforts in this week’s policy statement.

The BOJ has remained confident that inflation and spending would pick up, due mostly to the wage hike talks already happening. This could leave consumers with more cash to spend and allow companies to boost their product prices, eliminating the need for further stimulus from the central bank.

Apart from that, the prospect of Fed tightening could keep risk aversion in play. This could favor the lower-yielding Japanese yen and push EURJPY to its previous lows. However, if the Fed maintains that it doesn’t plan on tightening anytime soon, the yen might give back some of its recent gains when risk appetite returns.

By Kate Curtis from Trader’s Way