By: Christopher Lewis
EUR/JPY had a fairly bullish day on Tuesday as the Bank of Japan announced several new schemes to try and devalue the Yen overall. The central bank announced an expanded bond buyback program as well as many other deals that amount to quantitative easing. The value of the Yen fell against most currencies, the Euro included.
The pair is very correlated historically with the stock markets, and especially the S&P 500. Lately, this hasn’t been the case though, as the European Union in general has been in its own world thanks to the debt crisis. The pair is often a measurement of risk overall, and what we have seen lately is that traders are preferring to buy the AUD/JPY, NZD/JPY, or GBP/JPY as examples instead of having the exposure directly to the Euro as the region continues to go back and forth with several debt issues.
The overall risk appetite of the markets has been a bit wishy-washy lately, and as a result this pair has been an interesting one to say the least. However, the recent move above 102 might actually mean something of significance. Of course, this all would ride on what happens in the EU, which has been a moving target for a few years now.
Consolidation and the Next Move
The consolidation that we are seeing in the 102 to 103 range is an area that is certainly going to be worth watching. There are few currencies under more scrutiny than the Euro at the moment, save maybe the Hungarian Forint, and as a result this pair could be a great “canary in the coalmine” kind of pair for the overall strength or weakness of the Euro.
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The 103 level is the resistance level that the bulls need to overcome in order to run back to the 105 level, and on a breakout I am willing to buy this pair. Short-term trading is also possible if we see weakness at the 102 level on the lower timeframes, but this isn’t how I trade as a rule. We could enter a scalper’s market, and as such – this would be a great one to scalp as the levels are so clearly defined. On a break below the 102 level – I would sell, and feel that 100 would be the next level the pair tries.