TECHNICAL ANALYSIS EUR/JPY
In the trend of Euro/Yen, since the introduction of Euro in January 1999, we can notice, as a whole, 3 different macro-phases: Phase I (Jan 1999 – Oct 2000): falling down. Aſter being exchanged in the 132.50-135.50 area, just aſter the start of transactions in January 1999, the cross EurYen fell to a historical low at 88.97 on October 26th, 2000. Phase II (Nov 2000 – Jul 2008): the euro rallies. Since November 2000, there is the developing of a long phase dominated by a strong Euro, with the yen systematically sold and used as a funding currency, in order to finance investments in asset classes denominated in other currencies. Tis carry-trade activity brought to a “currency bubble”, which kept inflating till the burst of the real estate-financial bubble since Summer 2007. Te cross reaches a historical high at 169.95 in July 2008 (+91% vs the 2000 low). Phase III (Aug 2008 – today): euro’s collapse, and stabilization. With the burst of the real estate-financial bubble, since Summer 2007 and with an acceleration aſter Lehman Brothers’ bankruptcy in September 2008, a progressive strong disinvestment out of the major world
Bourses brought to heavy buying of Japanese yens in order to square-up the enormous carry trade positions accumulated in the years before. Tat brought to a collapse of the cross euro/yen, fuelled by a double drive: the fall of the euro vs. the US dollar plus the fall of the US dollar vs the Yen. Te cross collapsed to a low at 94.12 on July 24th (-44.6% from the historical high). Since the end of July 2012, a really strong rally was favored by the first cheering-up signals in the euro-zone – that contributed to a renewed risk-on attitude in the financial markets – and, in the last months, by the aggressive monetary easing decided by the Abe administration. From the bottom at 94.12 the cross pushed to a peak at 127.69 on February 6th (+35.7%), followed by a consolidation above 118.93. A consolidation phase below the top at 127.69 looks likely, with possible retracements towards 118.90: a break below that support would trigger a wider correction, targeting 117.45 and aſterwards 113.50. A bearish signal for the coming months, anyway, would only be triggered by a break of 113.50 (not very likely). Te proximity of the key resistance area 127.70-130.00 should cap the euro dynamics for many months to come.
FX
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
up-side S1 up
S2 side-up S3
SUPPORTS
118.90+ 117.45 115.50
SPOT PRICE 123.03
R3 R2 R1
RESISTANCES
130.00++ 127.69+ 126
FX TRADER MAGAZINE April - June 2013 77
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