By: Christopher Lewis
EUR/JPY has had a strong run as of late, rising from the 100 level to the 102 area. The pair is highly sensitive to risk appetite, and will often move in tandem with global stock markets such as the S&P500, Nikkei, and DAX. The relative safety of Japan is left for investments in Europe as the larger funds borrow in Yen at almost no interest and buy bonds in Berlin, Brussels, and other EU markets as an example. Because of this, the flow of currency will often show this in the form of the EUR/JPY pair.
The recent drama in the European Union has certainly played a massive part in most Euro crosses, but this one has another factor: The Bank of Japan. The Japanese central bank has acknowledged “silent intervention” in the currency markets, and the most obvious spot would probably be in the USD/JPY pair at the 76.50 level. However, the last time the BoJ intervened; it also bought Euro to go along with those Dollars. With this in mind, the pair would have a second reason to rise irrespective of the rumored agreement between Athens and the Troika on Tuesday.
The Importance of 102
The 102 level is just below the 38.2% Fibonacci retracement from the most recent fall in this pair. The 100 level just below is massive support as you can see from the bounce that came just a couple of sessions ago. The pair looks strong, but the rumors of the deal being reached could reverse quickly, and this pair would more than likely get hit hard. The breaking above the 102 level could see a move up to the 105 level though, and as such I am watching 102 with extreme interest.
.jpg "EUR/JPY Daily 2/8/12")
The trade is simple for me: If we can close above the 102 level on a 4 hour chart, I am willing to have a go with a long position in this pair. The failure at the level on the 4 hour chart, or any signs of concern in the markets bout the agreement, and I am willing to short this pair and aim for 100 or so.