EURJPY is currently approaching a significant technical inflection point after sweeping buy-side liquidity above the June high and retesting a historical resistance zone that has remained influential since January. Price is also developing a potential Head and Shoulders reversal pattern beneath this resistance, although the formation remains unconfirmed until further bearish price action develops. I will therefore be monitoring for a clear rejection from the highlighted resistance area before considering short exposure, rather than anticipating an immediate reversal. A sustained daily close above the April 17th high would invalidate the current bearish thesis, while downside objectives remain the July low, June low, and May low. Additional technical confluence may also develop should price retrace towards the 200-period EMA, which could align with the July low and provide an area of dynamic market reaction. Although the TDI is beginning to enter overbought territory, no bearish divergence has yet formed, reinforcing the need for confirmation before entering a position.
From a fundamental perspective, the broader macro backdrop could complement this technical outlook if expectations of continued Bank of Japan policy normalisation support the Japanese yen. Any increase in global risk aversion may also encourage the unwinding of yen-funded carry trades, historically providing additional demand for JPY and increasing downside pressure on EURJPY. Conversely, softer Eurozone economic data or a more accommodative stance from the European Central Bank could weaken the euro, further aligning with the bearish technical structure. Market participants should continue to monitor upcoming BoJ and ECB policy decisions, inflation data, and broader risk sentiment, as these developments may either reinforce or challenge the current macro narrative. While price action will ultimately determine whether this scenario develops, the technical and fundamental backdrop currently suggests that a confirmed rejection from resistance could present a compelling bearish continuation opportunity.
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