JPY crosses/Technical Analysis

EUR/JPY: Obvious parameters at 100.50/101.80

     A quick look at the 30-minute chart shows a 5-wave down-move which stalled at a double bottom. The 61.8% retracement of the down-move coincides with some previous highs near 101.80 and this is the obvious resistance level on the day. The neckline of the double bottom is at 100.50 and this is obvious support. I’d play this 100.50/101.80 range with a bullish bias given that the G7 is underway and we can expect oral intervention.

  1. Hi Sean, last night Bloomber aired an interview to one top Romney aid who stated that if the former governor wins he will be tough with China. I imagine that it is in China´s best interests an Obama reapointment. So, do you think that China could buy risk asstes as US stocks and high yield currencies in order to arrive to Election Day with a strong bull market to facilitate an Obama victory? Or is this pure imagination?

  2. Sean,

    My call on eur/aud was spot on yesterday and today I think it is again reversing after making a 100 pip move yesterday. I see 1.2550 again since euro will again reverse today

  3. Good morning Sean and all,
    You’re again avoiding EURUSD 😉


    Preferred: -Short the EURUSD around 1.3030 if we reach this during the European session with a scalping approach (short profits or fast SL to 0) since resistance will be strong.

    – Medium: Buy closer to 1.2920 (lower range) with SL at 1.2895, targets above 1.30.
    – Less favored: Buy the breakout from the trading range in the upper direction only (for instance 4 hour close above 1.2950) with targets above 1.30.

    The market yesterday rallied because the SP downgrade was not as dramatic as it could or should have been and on the hopes that Spain will now finally request a bailout. The wedge pattern that we indicated the previous days is now basically confirmed. This pattern implies that the market is undecided between upside and downside (indecision pattern). The market is now waiting for the action of the Spanish government. When Spain will request a bailout, and the OMT is activated, the market will have a confirmation that Europe has started partially sharing debt in order to avoid total collapse. Further relief rally should be the outcome. However, until then, there is a fear that Spain resists relinquishing part of its independence and that a scenario a la Berlusconi might have to be repeated (explosion in bond yields forcing government out). Since the Spanish authorities have already indicated their readiness to request help, the market is ready to price more than just indecision, that is there is a chance the market breaks the wedge and goes back to levels close 1.317 prior to the official bailout request.

    The indecision is even more visible on the yields of the Spanish government bonds as shown on the picture below. We can clearly see that Bollinger bands are now fully parallel and horizontal, and that the yields are in a tight trading range. Spanish 5 year and 2 year yield notes display the same behavior to the 10 year. So any movement of the 10Y above 6% will suggest the market is fed up and ready to push Rajoy out.

    Regarding EURUSD, we are currently close to the middle of the wedge as indicated on the graphic below around 1.2950. Yesterday we formed a bullish engulfing candle. We have rebounded on the lower edge of the wedge and it seems today we are set to test again the upper edge of the wedge around 1.3030. We could even end the week above this key level. The market is currently trapped in a trading range between 1.2920 and 1.2945 but is overall bullish. Therefore we favor buying closer to the lower end of the trading range with tight stop loss. A move to 1.3030 during the European session would offer a great short opportunity, but as we mentioned there are some risks of breakout from the wedge.

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