By: Christopher Lewis
The EUR/JPY pair fell on the session for Tuesday as the “risk off” attitude came back into the world’s financial markets. This pair has a long history of being very sensitive to the stock markets and risk sentiment in general, so when things get a bit on the nervous side, this pair will fall under normal conditions. This is especially true now that most fears come directly out of Europe.
The Yen has been worked against aggressively by the Bank of Japan, but the results have been less than stellar. This suggests that we can see more appreciation in the Japanese currency, and with all of the problems in the European Union, this trade could be a bit of a no-brainer.
The pair gapped down from the weekend, and the markets certainly have been anti-Euro overall so far this week. The markets have been very nervous and general, and the Yen has enjoyed gains against most currencies so far.
Consolidation
The current market action is between the 105 and 103 levels, and it seems that the downward pressure should continue as the markets are going to be more comfortable investing in Japan than the European Union. Also, there are many more chances to see negative headlines coming out of Europe than Japan.
The recent action sees the 200 day exponential moving average going flat, but the price has been falling. The 103 level looks well supported going back to the early part of February. The 100 level below that would also be massive support as well. As for going higher, the 105 level should now be resistance.
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I am playing this as a range bound market, but with a downward bias. I have much more confidence selling than buying, so I am more likely to be selling rallies than buying the potential bounce from 103. The fact is that whatever headline comes out next will more than likely be negative, and out of Europe. Because of this, I would rather the markets accidentally go too far in my favor than stop me out by trying to get cute playing the bounce.