EUR/JPY Price Prediction: Deploying a consolidation phase within an uptrend, gap risk

• The EUR/JPY is developing a consolidation phase within an uptrend. A breakout to the upside is eventually expected.
• A gap open just below the price presents a short-term bearish risk, however, a deeper pullback could develop first.

The EUR/JPY continues to display a consolidation phase within an upward trend in the short and medium term. Given the technical analysis axiom that “the trend is your friend,” however, the odds still favor an eventual continuation higher once this phase ends.

EUR/JPY 4-hour chart

A break above 166.69 (October 31 high) would likely confirm such upside continuation. Resistance at 167.96 (July 30 high) could provide an initial target and act as a barrier to further upside.

The minimum target for the range breakout, however, lies higher, at 169.68, the 61.8% Fibonacci extrapolation of the upward range height.

That said, there is a risk of a deeper pullback first due to the open gap, which is located just below the price between 164.90 and 164.45 (red shaded rectangle on the chart). Gaps tend to fill, according to the theory of technical analysis. If so, EUR/JPY may initially weaken and fall to the bottom of the open gap at 164.45, before perhaps recovering and resuming its dominant uptrend.

The Moving Average Convergence/Divergence (MACD) momentum indicator has been falling during the consolidation phase and this decline in momentum without a corresponding drop in price is a sign of underlying weakness. It is another slight indication of the risk of potential short-term weakness materializing.