eurjpy another potential downleg as japan retail sales looms 1847822017

Since our last analysis dated on 17 March 2017, the EUR/JPY had declined as expected and hit the short-term downside target of 120.00. Click here for a recap on our previous report.

Later today at 2350 GMT (Wed, 29 Mar at 750 a.m. SG time), Japan will release its February 2017 retail sales figure where average consensus is pegged at 0.5% y/y versus 1% y/y seen in January 2017.

Japan retail sales had notched three consecutive months of positive y/y growth since November 2016 in line with consumer confidence which had recorded an upbeat figure of 43.1 in February 2017. Even though, it slipped slightly below from 43.2 recorded in January 2017 and below consensus of 43.7, it was still the highest figure seen since 12 months ago in January 2016.

Bank of Japan’s latest “Consumption Activity Index” had also shown a remarkable improvement as it rose by 1.1% m/m in January 2017 after two consecutive months of decline in November and December 2016. Therefore, it seems that consumer spending has started to turn around after stagnation in Q4 2016. If February’s retail sales continue to show positive growth, it is likely to translate to lower expectations on further monetary easing measures which can further reinforce the current JPY strength in the short-term.

In addition, global equities continue to remain fragile in the short to medium-term (1 to 3 weeks) where the S&P 500 is still showing further potential downside below its 2373/76 medium-term pivotal resistance zone as the positive effects from Trumponomics fade away. Thus, the JPY may see further upside (risk off effect) which can translate into further potential downside pressure in EUR/JPY.

Now, let’s take a look at its latest technical elements

Short-term technical outlook on EUR/JPY

(Click to enlarge charts)

Key technical elements

• Since its low of 119.28 printed on 23 March 2017, the EUR/JPY has started to inch higher with a “bearish flag” continuation pattern that indicates potential “relief rebound” scenario within a downtrend (see 1 hour chart).
• Based on the Elliot Wave Principal and fractal analysis, the on-going “relief rebound” may be coming to an end/inflection level to kick start another downleg. Since the 23 March 2017 low of 119.28, the current up move is considered as a corrective minute degree wave iv with potential end targets set at the 120.39/120.75 zone that is defined by the 1.00/1.236 Fibonacci projection from 23 March 2017 low and the 38.2%/50% Fibonacci retracement of the decline from 13 March 2017 high to 23 March 2017 low.
• The next significant short-term support rest at the 119.10/118.90 zone which is defined by the minor swing low area of 01 March 2017, the lower boundary of the descending channel in place since 13 March 2017 high.
• The hourly RSI oscillator has just stalled right below a significant resistance of 68% where prior price movement of the cross pair has formed a minor peak before a significant downside reversal (depicted by the pink boxes).  These observations suggest a revival in short-term downside momentum of price action.

Key levels (1 to 3 days)

Intermediate resistance: 120.39

Pivot (key resistance): 120.75

Supports: 119.55, 119.10/118.90 & 118.30/19

Next resistance: 121.70

Conclusion

As long as the 120.75 short-term pivotal resistance is not surpassed, the EUR/JPY is likely to see the start of another potential downleg to retest its intermediate support at 119.55 before targeting 119.10/118.90 with a maximum limit set at 118.30/19 (the lower boundary of the medium-term ascending channel in place since 24 June 2016 low).

However, a break above 120.75 may negate the preferred bearish tone to open up scope for a further corrective up move towards the next resistance at 121.70 (minor swing high area of 21 March 2017 & close to 61.8% Fibonacci retracement of the down move from 13 March 2017 high to 23 March 2017 low.

Charts are from eSignal

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.