EURJPY has formed higher lows and lower highs, creating a symmetrical triangle pattern on its 4-hour chart. 

Price is testing the top of the triangle, still unsure whether to make a bounce or a break. A bullish pennant can be seen, hinting at the possibility of an upside breakout.

Stochastic and RSI are both on the move down, which suggests that bearish momentum is in play and that the top of the triangle might keep holding as resistance. In that case, the pair could move back to the triangle support at the 134.00 major psychological level.

In addition, the 100 SMA s currently below the long-run 200 SMA, suggesting that the path of least resistance is to the downside. However, the moving averages are also moving closer together, indicating that possibility of an upward crossover and a pickup in buying pressure.

Event risks for this setup include the release of euro zone final CPI readings on Friday, as this could confirm whether or not the region is in deflation. Recent reports from the euro zone have been mostly weak, particularly in Germany, suggesting that the recovery has lost its momentum. 

Data from Japan has also been mostly disappointing yet the BOJ hasn’t shown any indication of being willing to ramp up its stimulus efforts. The consumer confidence index released yesterday showed a drop from 41.7 to 40.6, lower than the projected 41.6 figure, while the preliminary machine tool orders indicated a sharp 19.1% tumble. 

Japanese revised industrial production numbers and the tertiary industry activity figure are up for release on Friday, with another round of weak data likely to spur more yen weakness. However, a downward revision in the euro zone final inflation reports might keep euro bears in the lead.

By Kate Curtis from Trader’s Way