FX TECHNICAL ANALYSIS EURO/YEN
Te cross euro/yen was first traded in January 1999, at around 132.50-135.50, and fell to a historical low at 88.96 in October 2000. From the bottom, the euro began moving upwards, entering progressively a major up-trend, and reaching a historical high at 169.95 in July 2008 (+91% vs. the October 2000 bottom). Te strong depreciation of the yen during last years has been mainly caused by the so called “carry trade”, i.e. the funding in low-yield currencies like the Japanese yen with the contextual reinvestment in asset classes in other currencies (i.e. stocks and bonds in euro, Australian and American dollars, etc.). Aſter the burst of the real estate and financial bubble – begun in the 2007 summer, with an acceleration aſter September 2008 – a progressive strong disinvestment from Stock Exchanges around the world led to massive yen buying in order to square up carry trade positions. Tat provoked a crash of euro vs. yen, driven by a double source: the fall of euro against the dollar and, at the same time, the
decline of the US dollar versus the yen. Aſter the break of 156 in September 2008 – in correspondence with the trendline that sustained the major up trend), the cross collapsed to a low at 112.10 in January 2009: the following bounce ran out of steam in the 138.50-139.20 area, during June-October 2009. Since the beginning of May 2010 the cross started going down again, with a sell-off – at the break of 120 – that led to a new low at 108.10 on June 8th (-36.4% from the historical high). Te last weeks’ bounce brought the cross back at around 113. As long as the cross remains below the resistance at 120, the technical picture remains bearish. A break below the 108.10 low would trigger a decline towards 105 and then a test of the psychological support at 100, where a technical reaction is to be expected. For the coming weeks, a positive signal would be triggered by a break above 120 (premature) but only above the strong resistance at 127 should there be a bullish signal for the coming months.
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
down down down
58 FX TRADER MAGAZINE July - September 2010
S1 S2 S3
SUPPORTS
108.10+ 105
100++
SPOT PRICE 112.52
R3 R2 R1
RESISTANCES 127++ 120 115
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