eurjpy potential short term corrective rebound in progress above 115 5030 2691092017

Since our last analysis dated on 05 April 2017, the EUR/JPY had plunged as expected and met the downside target/support of 117.05/116.80 . It has continued south to print a new marginal low of 114.82 on 17 April 2017 reinforced by geopolitical risks from Europe (upcoming 1^st round French presidential election on this coming Sunday, 23 April) and rising tension between U.S. and North Korea. Click here for a recap on our previous report.

For this coming week, the main fundamental event that will have a significant impact on the EUR/JPY cross pair is the 1^st round of the French presidential election where the top two candidates voted in will proceed to the final face off (2^nd round) of the election on 07 May 2017. (Unless a candidate wins at least 50% of the popular vote in the 1^st round)

Markets will be concern how far the global “populist wave” has travelled where we have witnessed the victories of Brexit campaigners and the emergence of U.S. President Trump.  The top three candidates are Emmanuel Macron (centrist –pro business), Marine Le Pen (far right – populist, anti-Euro) and Jean-Luc Melenchon (far left – anti-austerity).  

Based on Financial Times latest opinions polls tracker (19 April), Macron and Le Pen have continued to emerge as the top two, fighting neck to neck with Macron leading with a share of 24% and Le Pen has taken a share of 23%. Interestingly, Melechon has been a rising dark horse whose share of opinion votes has risen sharply to 19% which allowed him to claim the third spot.

In past 3 weeks, markets have already priced in a victory for Macron and Le Pen in the first round of the presidential election and only if Le Pen’s share of the votes surpassed above significantly from opinion polls, it is likely that the risk aversion will reignite which will be negative for the EUR/JPY.

On the other hand, if Le Pen gets eliminated in the 1^st round where we see Macron and Melechon proceed to the 2^nd round, the EUR is likely to gain further after yesterday (18 April) rally triggered by U.K sudden announcement of a snap election which can be positive for the EUR/JPY in  the short-term.

Now, let’s take a look at its latest technical elements

Short-term technical outlook on EUR/JPY

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(Click to enlarge charts)

Key technical elements

• The cross pair has staged a bearish breakdown below its medium-term ascending channel support from 24 June 2016 low (Brexit) now turns pull-back resistance at 117.50/90 (see daily chart).
•  The aforementioned pull-back resistance of 117.50/90 also confluences with the minor descending trendline from 13 March 2017 high and the 38.2% Fibonacci retracement of the recent plunge from 13 March 2017 high to 17 April 2017 low of 114.82.
• The daily RSI oscillator has started to inch up close to an extreme oversold level of 15 which suggests that the recent downside momentum of price action has started to get “overstretched” where the cross pair may see a mean reversion rebound at this juncture.
• The key short-term support now rests at 115.50/35 which is defined by the 61.8% Fibonnacci retracement of the recent up move from 17 April low to today (19 April) current intraday Asian session high of 116.61 and the former minor swing high area of 17 April 2017.
• Based on the Elliot Wave Principal and fractal analysis, the cross pair is likely to have completed a five wave down move of a minor degree from 13 March 2017 high of 122.88 to the recent low of 114.82 printed on 17 April 2017 (i,ii,iii,iv & v of a). Current price action may be undergoing the corrective minor degree rebound (wave b) to retrace the recent decline before a new down leg materialises to print a new marginal low. The potential minimum target of the wave b corrective rebound stands at 117.90 (38.2% Fibonacci retracement of the wave a decline) (see hourly chart).
• The hourly Stochastic oscillator has started to inch downwards and still has some room left to manoeuvre to the downside before it reaches an extreme oversold level. It has also flashed a prior bearish divergence signal at its overbought region. These observations suggest that the upside momentum of the on-going rebound in price action from 17 April 2017 low has started to abate where the cross pair may see a minor pull-back in price action at this juncture.

Key levels (1 to 3 days)

Intermediate support: 115.80

Pivot (key support): 115.50/35

Resistances: 117.00 & 117.50

Next support: 114.80

Conclusion

Short-term potential corrective rebound in progress for EUR/JPY but it may see a minor pull-back at this juncture first towards the 115.80 intermediate support with a maximum limit set at the 115.50/35 short-term pivotal support before another potential upleg of the corrective rebound materialises to target to 117.00 before 117.50 next.

Do note that any potential rebound is just short-term in nature and it is likely not the start of a multi-month recovery process for the EUR/JPY. From a technical analysis perspective, the EUR/JPY is likely to see a further downside pressure after the corrective rebound phase is over at least in the medium-term (1 to 3 weeks) to retest the next support at 112.32 and even the Brexit low of 109.54

On the other hand, a break below 115.50/35 is likely to invalidate the preferred corrective rebound scenario for a decline to retest the recent 114.80 swing low area.

Charts are from eSignal

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