EURJPY has pulled up from its continuous dive in the past month and appears to be making a quick correction. 

For now, it is stalling at the 38.2% Fibonacci level, which is aligned with a former support zone and the 136.50 minor psychological resistance.

Stochastic is indicating overbought conditions, which confirms the potential return of sellers and a possible drop to the previous lows around the 134.00 area. At the same time, the 100 SMA has just crossed below the 200 SMA, reflecting a pickup in selling pressure.

MACD is moving higher though, which means that a higher correction is still possible. The 200 SMA lines up with the 138.00 handle and the 50% Fibonacci level, which might also act as resistance.

Shorting at market with a stop above the 61.8% Fib or 138.50 and aiming for new lows could work for a longer-term trade. Adjusting the stop to entry once price tests the previous lows around 134.00 could be a good way to reduce risk ahead of key events.

The event risks for this trade include the release of the German and French manufacturing and services PMIs later this week, with weak data likely to spur another round of euro selling.

By Kate Curtis from Trader’s Way