Chart of the week – Potential mean reversion rebound for EUR/JPY

Chart of the week – EUR/JPY

Potential mean reversion rebound for EUR/JPY (short-term technical analysis)

Time stamped: 22 Aug 2021 at 2:00pm SGT (click to enlarge chart)

Source: CMC Markets

The two and a half months of -619 pips decline seen on the EUR/JPY cross pair from its 1 June high of 134.12 to its recent low of 19 August has reached a significant medium-term support zone of 128.20/127.90.
The 128.20/127.90 medium-term support zone is defined by a confluence of elements; the former swing low areas of 2/24 March 2021, the lower boundary/support of the descending channel in place since 1 June 2021 high and the 50% retracement of the prior medium-term up move from 30 October 2020 low to 1 June 2021 high.
In conjunction, the 4-hour Relative Strength Index (RSI) has shaped a bullish divergence signal at its oversold region on last Friday, 20 Aug followed by a bullish breakout from its corresponding significant descending resistance at the 43% level during the US session on 20 Aug. These observations suggest that the recent downside momentum is likely to have lose its strength which in turn supports a potential mean reversion rebound in price action.
Watch the 127.90 key medium-term pivotal support for a potential push up to retest the 129.40 intermediate resistance (former minor range support from 4/13 August) and a break above it sees a further potential up move to target 130.30 next (range resistance from 16 July/2 August & the 38.2% of the recent decline from 1 June 2021 high to 19 August 2021 low).
On the flipside, a 4-hour close below 127.90 invalidates the mean reversion rebound scenario for an extension of the medium-term down move towards the next support at 126.35 (former swing high areas of 13 August/1 September 2021).

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