FX TECHNICAL ANALYSIS EUR/JPY
The 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). The 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.). After the burst of the real estate and financial bubble – begun in the 2007 summer, with an acceleration after 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. That 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. After 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 after 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 new low on October 4th at 100.78 (-40.7% from the historical high). After a rally with a top at 111.54 on October 31st, a new sell-off pushed the cross back towards the lows reached in the beginning of October, touching a low at 101.05 on December 15th. Te technical outlook remains weak: as long as the cross remains below 106-108 the downward risk is prevailing, with possible new falls towards the October 4th low at 100.78, with extensions towards the strong support, non just psychological, around 100. A break below that level would provide a new bearish signal for the coming months, with a first target at 95. Te trend would turn positive only above 110-111.55 (not very likely). A bullish signal for the coming months would only come above the key resistance at 115 (unlikely).
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
down down down
88 FX TRADER MAGAZINE January - March 2012
S1 S2 S3
SUPPORTS
100.78++ 100+ 95+
SPOT PRICE 102.01
R3 R2 R1
RESISTANCES 115++
110-111.55++ 106-108+
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