The Euro pulled back on Tuesday, as the consolidation continues, with an upwards tilt. With this, the market continues to pay those holding Euros against the Japanese yen.
EUR/JPY
The Euro pulled back just a touch during the trading session on Tuesday only to turn around and show signs of life again. The bounce that we have seen occurred at the 50-day EMA and it opens up the possibility of a continuation to the upside, but you also have to keep in mind that the 185 Yen level above is probably going to be thought of as a potential short-term barrier, but that could also make it a target.
Keep in mind that the Japanese Yen is weak against almost everything, but at the same time we see the Euro gaining a little bit against multiple other currencies. The 182 Yen level will continue to be an area of support.
Carry Trade and Volatile Headlines
I think as long as we can stay above that level, it remains a buy-on-the-dip scenario, especially as the interest rate differential favors Europe, although if you are trying to play the carry trade you are probably going to use other higher-yielding currencies to do so.
Over the longer term, I think we have a situation where we could go looking at the 186 Yen level, but it is going to remain a very noisy turn of events and the next headline that comes out, especially if it destroys risk appetite. If we were to break down below the 181 Yen level, I think that opens up the floodgate but right now, I believe we have a scenario where traders are going to continue to find reasons to get long, mainly not because they want to own Euro, but because they do not want to own Yen.