EUR/JPY in bullish breakout amid insatiable appetite for risk
Fawad Razaqzada May 15, 2017 6:12 PM
Underscoring investors’ on-going insatiable appetite for risk, the benchmark stock indices in Germany and the UK hit new record highs today. The commodity-heavy FTSE 100 rose on the back of a sharp rally in the price of oil while the DAX was boosted by news German Chancellor Angela Merkel won in a local regional election. As a result of the oil and stock market rally, commodity currencies outperformed while perceived safe haven yen and dollar both fell. The euro continued its recent ascend thanks to the market-friendly outcome of the German regional election, and previously the French general election. When the single currency rises in a “risk on” market environment, the EUR/JPY is usually the euro pair that tends to outperform as the safe haven yen takes a back seat.
Indeed, the EUR/JPY has confirmed its recent breakout above the key 124.00 handle by forming a new high today after a period of bullish consolidation, which is usually characterised by a modest – often choppy – retracement after a sharp rally. After a lengthy period of range contraction, the market digested all the available news and decided to push further higher. Thus, the point of origin of this latest phase of the rally needs to be monitored closely in the event the buyers show unwillingness to bid the pair meaningfully higher. Specifically, a potential break below today’ low around 123.60 would invalidate this bullish breakout. However, for now the path of least resistance is to the upside until such a time we see a reversal pattern unfold at higher levels or 123.60 breaks down first.
With that in mind, it is better to now focus our attention on the upside and so the next bullish objective would be at the psychologically-important 125 handle. Beyond this, the prior reference points at 126.45 and 128.15 would probably become the next targets for the bulls. It might be a bit premature but 129.50-130.00 may be in the bulls’ radars, too, now. This area marks the projected point D of an AB=CD price pattern. In addition, the 161.8% Fibonacci extension level of the drop from point B meets the 50% retracement of the long-term bear trend here. All this makes it a key technical level, not to mention the importance of the psychological 130 handle. But let’s not get ahead of ourselves, because in the event the noted 123.60 level breaks then all bets would be off. In this potential scenario, I wouldn’t be surprised if the EUR/JPY were to stage a sharp sell-off.
Source: eSignal and FOREX.com.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.