EURJPY — Liquidity Above, Pullback Below?

EURJPY is currently trading inside a major supply area after a strong impulsive move higher, and from my perspective the market is entering a phase where execution matters more than directional conviction.
After analyzing technical structure, COT positioning, seasonality, and market sentiment, I’m starting to see signs that this move may be transitioning from expansion into distribution.

Technically, price is now compressing below a key resistance zone between 185.00 and 186.20, an area that previously acted as institutional supply. Momentum has clearly slowed, with price forming smaller candles and struggling to produce continuation despite remaining near highs.

What stands out to me is the lack of follow-through. Strong trends usually accelerate near highs, here instead we see hesitation and compression, which often precedes liquidity events rather than immediate continuation.
From a positioning perspective, the latest COT data shows increasing interest in Japanese Yen longs while Euro positioning is losing momentum. This doesn’t necessarily imply a major reversal yet, but it does suggest that upside may be becoming crowded.

Seasonality also supports a more cautious outlook. Historically, March tends to favor consolidation or retracement phases on EURJPY after strong early-year advances.
Retail sentiment adds another interesting layer: the majority of traders are currently short EURJPY. Normally this would support further upside, but when extreme sentiment appears during a slowing trend, markets often perform a final liquidity sweep before rotating.

Because of this, my primary scenario is:
potential liquidity grab above recent highs,
rejection inside the supply zone,
followed by a pullback toward lower demand levels.

Invalidation would come from strong acceptance above the supply zone with sustained momentum, which would signal continuation toward higher highs.