EURJPY recently formed a reversal pattern on its 1-hour time frame, signaling that an uptrend might take place. Price just broke above the double bottom neckline at 125.00, confirming that further gains are in the cards.
The 100 SMA is crossing above the longer-term 200 SMA,confirming that a reversal from the downtrend is beginning. However, stochastic is heading down from the overbought zone, indicating that selling pressure is still present. RSI is also on the move down so price might follow suit.
A pullback to the broken neckline around the 124.50-125.00 is still possible before price resumes its climb. A break below this area, though, could indicate that sellers are gaining more energy to push price down to the previous lows at 122.00. A return in bullish pressure could lead to a climb of around 300 pips, which is the same height as the chart pattern.
Event risks for this setup include the ECB interest rate statement later on in the week, as an additional round of quantitative easing is expected. However, this scenario has already been priced in for a long while back, as ECB head Draghi has pointed out that they might need to ramp up stimulus.
There are no major reports due from the euro zone and Japan for the rest of the week, leaving traders to position ahead of the ECB statement. A lower than expected level of easing could mean more gains for the euro, similar to the rally seen in their earlier rate decision.