EUR/JPY: one to watch if risk aversion rises
Fawad Razaqzada November 29, 2016 11:40 AM
The euro has weakened against most currencies in recent times but has strengthened against the perceived safe-haven Japanese yen, due to the generally positive risk sentiment in the markets. But with the US stock markets ending their remarkable winning streak and the Italian referendum and OPEC meeting being among the key short-term risk events, the EUR/JPY could be the next domino to fall if investors’ attitude towards risky assets turns negative now.
In fact, the EUR/JPY has already retreated somewhat from key resistance and psychological level of 120.00 this week. As a result, the long-term bearish trend line has remained intact for the time being. However, the losses have so far been contained with the 200-day moving average at 118.60 providing decent support thus far today. Therefore, one can say that the EUR/JPY is stuck between a rock and a hard place. A move below the moving average would tip the balance in the favour of the sellers, while a break above 120.00 would be bullish. But with the RSI being near the ‘overbought’ threshold of 70, a short-term pullback here may actually be a healthy move as far as the recent bullish trend is concerned.
Within this 118.60-120.00 range an interesting area to watch is around 119.30-119.55, the distance between Monday’s open and low, which was taken out after Tuesday’s sell-off. If the trend is turning bearish then the sellers will need to defend this area today.
The recent break higher may mean that the EUR/JPY has found a long-term base and that a pullback here may just be that, a pullback inside a rising trend. So the bears need to proceed with the mentality of a sniper: one shot, one kill and lots of patience. There are lots of potential support levels to watch on the way down. Below the 200-day is the prior resistances at 118.40, followed by 117.15 and then at 116.35. The potential pullback could end at any one of these levels.
The bulls meanwhile will want to see the overbought conditions unwind either through price or time (more favourable). In any case, a potential break above 120.00 would probably mark the resumption of the upward trend, in which case the immediate focus will then turn to the next point of reference at 122.00: the last high prior to the down move in July.
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.