The downtrend will resume after the correction ends

• EUR/JPY is retreating into a short-term downtrend.
• The correction will likely wear out and prices will fall again, targeting the August 5 lows.

EUR/JPY has been trending lower since returning to August 16 highs.

The mainly falling sequence of highs and lows indicates EUR/JPY has established a short-term downtrend, which, according to technical analysis theory, favors more dips in line with this trend.

EUR/JPY 4-hour chart

In recent periods, the pair has recovered after hitting a new low of 157.47 on Friday. Given the overall downtrend, this rally is likely just a countertrend correction that will eventually fizzle out, allowing the bears to continue pushing prices lower.

While there is no sign that the pullback is over, if it is and the price breaks below the 157.47 lows, that would confirm an extension of the downtrend, with the next target at 154.44 – the August 5 lows. A break below this would be an even more bearish sign and suggest a likely reversal of the long-term uptrend.