TECHNICAL ANALYSIS EUR/JPY
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 the years 2002 – 2007 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 US 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 112.11 in January 2009: the following bounce ran out of steam in the 138.50-139.20 area, during summer 2009; then the cross started going down again, with a bottom at 105.44 in August 2010. From the bottom at 106.84, touched on January 10th 2011, a strong rally – interrupted by the sell-off aſter the earthquake that brought the cross back to the January lows (March 17th low: 106.81) – pushed the cross to a peak at 123.32 on April 11th. From that level the selling pressure resumed, with a constant decline in the last 5 months, touching a new low at 103.93 on September 12nd (-38.8% from the historical high). Bounces towards 107.50-108 can’t be ruled out but as long as the cross stays below such resistance the technical outlook remains very weak. Te break of 103.90 would push the cross towards the psychological support at 100. Tere would be a signal of stabilization only above 110 (not very likely). A bullish signal for the coming months would only come above the strong 112-113.50 resistance area (unlikely).
FX
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
down down down
S1 S2 S3
SUPPORTS
103.90+ 102
100+
SPOT PRICE 105.97
R3 R2 R1
RESISTANCES
112-113.50+ 110++
107.50-108+ FX TRADER MAGAZINE October - December 2011 71
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