The Euro has been noisy on Monday against almost everything else. This is a pair that I am watching very closely at the moment.
EUR/JPY
The Euro has turned things around quite nicely against the Japanese yen and I think we have a situation where I might be a buyer here. After all, the interest rate differential favors the Euro and of course the Japanese have a major problem here with the interest rate differential and the fact that the Bank of Japan really has no real shot at raising rates.
So, with that being the case, I like the idea of buying pullbacks. And I think somewhere near the 186 yen level we should see a bit of a floor. If we can take off to the upside and break above the 188 yen level, then I think we really start to move quickly to the upside.
Right now, I do like buying dips in yen-denominated pairs and this one won't be any different. The Euro's been fairly healthy during the trading session, but you have to keep in mind that there was an initial gap lower for the Euro against many currencies, although here at least we have turned around to fill that gap and break above it.
Japanese Yen’s Weakness and the Carry Trade Potential
Over the longer term, I think that the carry trade is coming back into favor because so many different countries around the world are going to have to keep interest rates higher than Japan and I just don't see how that changes. If we turn around and fall from here, the 185 yen level is an area that I think ends up offering a floor, especially as the 50-day EMA is racing toward that.
I don't have any interest in shorting this pair. I think eventually the Japanese yen has a major problem. Above the 188 yen level, I'm looking for the market to move to the 190 yen level, perhaps even higher than that.
Potential signal: I am buying here, with a stop at 186 and adding if we get a daily close above 188.