FX 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 new low on October 4th at 100.78. Aſter a rally with a top at 111.54 on October 31st, a new sell-off pushed the cross back below the October’s low, reaching a new low at 97.04 on January 16th, 2012 (-42.9% from the historical high). Since mid-January’s low, a strong rally brought the cross back around the 110 resistance level. A consolidation above the 105 support would keep a positive outlook, with a possible prosecution of the recovery towards the strong resistance area 111.55-112, where take profits are to be expected. A reliable bullish signal for the coming months would only come form a break above the key 115 resistance level (unlikely). In the next months the mood would turn bearish again only below 102 (not very likely right now).
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
up up-side down-side 88 FX TRADER MAGAZINE April - June 2012
S1 S2 S3
SUPPORTS 107.50
105.00++ 102++
109.76
SPOT PRICE
R3 R2 R1
RESISTANCES 118
115++ 111.55-112++
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