EUR/JPY recently experienced a steep sell-off, reaching a low of 164.83, which was well below its peak of 175.43 on July 11. However, the pair has since been showing signs of recovery from oversold levels. The formation of a bullish Dragonfly Doji reversal candlestick on Thursday indicates a potential correction higher, especially if there is a bullish close on Friday. The Relative Strength Index (RSI) also dipped into oversold territory on Thursday, suggesting a possible move higher if it moves back above the oversold zone on Friday.
Despite the potential for a short-term recovery, the medium-term downtrend for EUR/JPY is likely to resume once the correction runs out of steam. The overall trend is bearish, and once the recovery phase ends, price is expected to continue lower. The 200-day Simple Moving Average (SMA) at 163.97 is the next support level to watch for, with a possible further decline to major trendline support around 157.50 if the SMA is breached. The current bias is towards the downside, as the saying goes, “the trend is your friend.”
However, there is still a possibility for EUR/JPY to make a full recovery back to the July 11 highs and potentially even higher. The longer-term trend remains intact, and the outcome will depend on how price action unfolds and the strength of the recovery. A bullish close on Friday would add confidence to the bulls, but ultimately, the medium-term downtrend is likely to prevail. Traders should keep a close eye on key support levels and monitor price movements for any signs of a stronger reversal or continuation of the downtrend.
