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TECHNICAL ANALYSIS EUR/JPY


Since the introduction of Euro in January 1999, we can notice, as a whole, 4 different macro-phases in the Euro/Yen trend,: Phase I (Jan 1999 – Oct 2000): Euro drop. Aſter being exchanged in the 132.50-135.50 area, just aſter the start of transactions in January 1999, the cross EURJPY fell to a historical low at 88.97 on October 26th, 2000. Phase II (Nov 2000 – Jul 2008): strong euro rally. 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 resulted in 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 – July 2012): euro’s collapse With the burst of the US real estate bubble, since Summer 2007 and with an acceleration aſter Lehman Brothers’ bankruptcy in September 2008, a progressive strong divestment out of the major world bourses lead to heavy buying back of Japanese yen 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, accelerated by a double whamming: 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). Phase IV (July 2012- today): euro’s recovery. 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 133.73 on May 22nd (+42% since July), followed by a consolidation above 125. In the last months the cross has been moving consistently and substantially above the strong support at 118.90. Tere seems to be high probability of the current


consolidation phase to continue. A first weakness signal would be triggered by a break below 125, targeting 122; a wider correction would be induced by a break below 122 (premature), for a test of the strong support at 118.90: below 118.90 the technical outlook would become bearish again in the coming months. Maintain bullishness above 131, but a new buy signal would only be provided by the overcome of 134 (not very likely).


FX


TREND


Trend 3-6 months Trend 6-12 months Trend 12-18 months


up-side S1 up-side S2 up


S3


SUPPORTS


125.00+ 122.00


118.90++


SPOT PRICE 128.11


R3 R2 R1


RESISTANCES 134++ 131+ 130


FX TRADER MAGAZINE July - September 2013 74


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