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EUR/JPY Forming an Outside Bar at Resistance

EUR/JPY is forming an outside bar today (8/22), where its high is above the 8/21 candle high, and low is below the 8/21 candle low. This is usually a sign that the prevailing bullish swing might need or breather or come to and end and reverse.

When we look at the overall EUR/JPY, we can see that the bearish outlook is probably preferred. 

1) The 138.00 resistance held.
2) The Daily RSI held below 60 - bearish momentum is maintained.
3) Price came back below the 50-day simple moving average (SMA), so price relative to the moving averages is bearish.

EUR/JPY Daily Chart

(click to enlarge)

If traders follow through with the bearish outside bar, the downside is toward the 135.73 low, then perhaps a former resistance pivot at 135.50 from Oct. 2013. When we look at the 4H chart, we can see that the bearish continuation outlook might be a bit premature. The latest 4H candle is catching some buyers at the 137.30 area. You can see that this 137.10-137.30 area contains the cluster of 200-, 100-, and 50-day SMAs as well as a rising trendline and support/resistance pivot area.

A break below 137.00 would clear these support factors in the 4H chart. We should also see the 4H RSI dip below 40 to signal a loss of any bullish momentum we seen in the past couple of weeks.

EUR/JPY 4H Chart 8/22

(click to enlarge)

If price fails to complete the bearish continuation signal, and instead rallies back above 138.00, it will open up a near-term bullish outlook toward 139.00. We can see no the daily chart that 139.00 will likely be reinforced by the falling channel resistance and the 100-day SMA. A break above these levels will then open up the bullish outlook in the medium-term, especially if the daily RSI pops up above 70.