EUR/JPY technical analysis: Do bulls still have plenty of gas in the tank?

EUR/JPY was quite a show overnight, but given the risk-on environment, despite the European Central Bank cutting rates, the euro was able to rally and the Yen took a knock, falling across the board as the worst performer on the day. EUR/JPY rallied from the post ECB lows of 117.55 to a high of 119.89 prior to settling in on above the midpoint of the handle for the Asian hand over.

At this juncture, the cross closed above the trendline resistance of the descending channel and sits between a number of key confluence levels as being the July low, August 6 and 13 highs, 55-day moving average and the six-month resistance line at 119.54/120.06. "Support below the 117.52 August 12 low can be seen at the 116.58/115.87 recent lows," analysts at Commerzbank explained. 

The market now depends whether an interim trade deal with China will come to fruition and whether eurozone nations, such as France and Germany, toe the line of the ECB calling on the member nations to ramp up their own fiscal stimulus programs. Should there be a continued unwinding of the euro shorts leading into the Federal Reserve next week, expected to cut rates, then the cross can move up towards the 121 handle and mid-summer supporting levels ahead of the 124 handle on the wide. First up is the 38.2% retracement of the March swing highs to Sep swing lows, located a stone's throw away in the 120.30s.

EUR/JPY daily chart