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Short-term Trading Idea FX EUR/JPY – Bear Speculation: Break in the Support

Trading opportunities on currency pair: after a two-day consolidation in the range of 113.90-135.33, the euro/yen pair has broken the support and fallen to 133.71. I suggest looking at two price levels: 132.42 and 131.30. Further falls will be cancelled out at a close of the candle above 135.33.

In this review I will start by saying that between the EUR/USD and the EUR/JPY there’s a sustained correlation of around 0.93. This means that if the euro/dollar heads downwards, the euro/yen will follow it and vice-versa. There are times when the correlation turns negative.

After reaching 136.95, the euro rate returned to 133.90. On 19th May the euro crumbled after what two ECB representatives had to say. Christian Noyer and Benoit Coeur let us know about the ECB’s readiness to extend their summer program of QE. Weak data for Germany and the Eurozone also piled the pressure on the euro.

After a two-day consolidation in the 113.90-135.33 range, on Friday the euro/yen broke the support and dropped to 133.71. Traders reacted to the growth in inflation by selling the euro since it could be seen as a reason to increase the base rate. The head of the US Federal Reserve, Yellen, announced that rates this year will be in the zero region.

The US’ April CPI was 0.1% MOM, -0.2% YOY (forecasted: 0.1% MOM, -0.1% YOY, previous: 0.2% MOM, -0.1% YOY). Their April CPI without taking food and fuel prices into account was 0.3% MOM, 1.8% YOY (forecasted: 0.2% MOM, 1.7% YOY, previous: 0.2% MOM, 1.8% YOY).

By analyzing the other cross pairs, I came to the conclusion that, following the break of the support, the EUR/JPY will continue to fall. Since the euro/dollar overcame the 1.1050-1.1070 zone, I suggest looking at 132.42 and 131.30 as the two price levels.

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