EUR/JPY in focus as stocks tumble
Fawad Razaqzada November 9, 2017 5:48 PM
Something extraordinary happened today: stocks fell for once (!) Now you might be thinking that I am a perma-bear, but I promise you I am not. Believe it or not, I actually prefer it when the markets go up. But the reason I sound mildly excited is that the stock market sell-off has injected some much-needed volatility in the FX markets, which have been very quiet so far this week due to the lack of significant economic news. Perceived safe haven currencies such as the Japanese yen, Swiss franc and to a lesser degree the euro all gained ground as the stock markets sold off.
But it remains to be seen whether the sellers would maintain control heading into the close. How Wall Street closes today’s session could have a big impact on Friday’s trend. If the indices bounce significantly off their lows then we may see some bullish follow-through on Friday, which could help lift the likes of the USD/JPY and USD/CHF off their lows. However, if the stock market weakness persists then the Swiss franc and Japanese yen could rise further.
An interesting FX pair to watch heading into the end of the week is the EUR/JPY, which tends to have a strong correlation with the stock market. This pair was actually trading flat at the time of this writing despite the stock market sell-off. In fact, so far this month, it has had no consistent correlation with the stock markets, but typically the correlation coefficient is around the 0.80 level.
The EUR/JPY was testing liquidity above the previous day’s range and pulling back a little when this report was written. Failure to hold above the previous day’s high of around 132.17 would be the first warning sign that further losses could be on the way. But for us, a closing break below key support at 131.75 is needed for confirmation. Unless that happens, we would hesitate to turn bearish on this pair despite the Wall Street sell-off. A daily close above 132.17 level on the other hand could possibly pave the way for a rise towards the range highs again.
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.