CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

EUR JPY bears gunning for Fibonacci support sub 130

Article By: ,  Financial Analyst

Markets are mostly – wait for it – quiet in between-holiday trade as the sun rises on another trading day in North America. As my colleague Fawad Razaqzada noted earlier today, equities are trading higher across the board as are most commodities, while the US dollar is generally steady.

Continuing our trend of taking a slightly longer-term look at major currency pairs ahead of 2016, we wanted to put EUR/JPY under the microscope next. Not surprisingly, the single currency has been generally weakening against its Japanese rival over the last six months. Over this period, the European Central Bank has been more aggressive in easing monetary policy than the Bank of Japan, notwithstanding Draghi’s half-hearted measures early this month and the BOJ’s tweak to its QE program.

It’s difficult to see either of these central banks actively tightening monetary policy in 2016 as the European and Japanese economies continue to struggle with deflation, so the relative pace of easing in the coming year will be a major driver for EUR/JPY. If the current “green shoots” of an economic pickup in the Eurozone continue to blossom, the ECB may be able to hold off from additional easing, which would support the euro relative to the market’s depressed expectations.

On the other hand, if the Japanese PM Shinzo Abe’s Three Arrows finally jumpstart Japan’s economy and price pressures, EUR/JPY may continue to fade next year. Based on the recent history, we’re skeptical either of these optimistic scenarios will come to pass, but given the nascent signs of renewed growth in the Eurozone, Europe’s economy may be in a better place than Japan’s to start the year.

Technical view: EUR/JPY

Turning our attention to the chart, EUR/JPY is currently trading in the middle of its six-month bearish channel, so the sellers still are in control in the medium-term. The secondary indicators confirm this bearish view, with the MACD holding consistently in negative territory, while the RSI struggles to reach “overbought” territory, even on the counter-trend bounces.

A short-term bounce toward the top of the range near 134.00 is certainly possible given the illiquid trading conditions, but as long as rates remain below that barrier, more downside will be favored heading into January. The next major support level to watch will be psychologically-significant 130.00 level, followed by the 78.6% Fibonacci retracement at 129.30.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024