Top Story

Could EUR/JPY break lower along with stocks?

Mirroring the going stock market indecisiveness, the risk-sensitive EUR/JPY is currently stuck below a key technical area around 129.50. We are waiting to see if it will start to break down with some follow through now, or whether the buyers will come back and regain control. Similarly, the global stock markets appear poised for a potential break down as we discussed in THIS report. Furthermore, gold’s sizeable rally on Tuesday may also be indicative of investors growing increasingly risk averse.

Taking into account price action since the start of February, which is when we also saw a big breakdown in global stock indices, the technical outlook looks overall bearish. For one, we have a number of lower lows and lower highs in place. For another, price is currently holding below both the 50- and 200-day moving averages. What’s more, these moving averages are also now pointing lower, objectively telling us that the trend is bearish.

However the big kick-back rally from around the 125.00 handle makes us wonder whether a low has already been formed. But so far, the key resistances have been respected and we haven’t had a break in market structure of lower highs.

Thus, all told, the trend is indeed bearish. So, can we now see the resumption of that downward trend?

Well, as can be seen on the chart, the EUR/JPY’s kick-back rally has come to a halt, at least for the time being, after the sellers stepped in right at the key 129.50 resistance level. As well as a prior support, this level also corresponds with the bearish trend line and the 38.2% Fibonacci retracement level. It is therefore a big level and so long as price remains below it, the path of least resistance would be to the downside. However, if rates were to break this 129.50 level and hold above it then we could see a resulting sharp rally.

If 129.50 holds as resistance and short-term support at 128.50 – which was being tested at the time of this writing – breaks down, then the next logical bearish objective would be to target the liquidity that would be resting below the most recent low at 127.15, followed by the next pool of liquidity underneath the subsequent low at 124.60.

Conversely, if 129.50 resistance breaks, then the bulls would aim for the liquidity pool above the most recent high at 130.35. Subsequent resistance, or potential resistance, comes in around the 132.00 handle which corresponds with the 200-day average and was a previous inflection point.

Source: and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.