EURJPY tried to break higher yesterday on the back of the FOMC, but can it carry through or will it reverse back into the range and head back lower on ongoing EU uncertainty?
One of the charts I am focusing on today is the EURJPY chart, after yesterday saw the pair closing higher on the back of the FOMC meeting. Some support for the EURJPY upside was found in new highs in the German bund yield and a reduction in spreads of German debt to peripheral debt yesterday. The day EURJPY bottomed below 96.00 was also the day that the German bund yield bottomed at around 1.12%, since then EURJPY has rallied to touch its 55-day moving average yesterday while the German bunds have sold off heavily and brought the yield all the way back to 1.63%, which also happens to be – almost to the bp – the lowest yield bunds saw in 2011.
So obviously this is a key level for EURJPY when bunds are equally at a key pivot area, as JPY nearly always follows the direction in yields and yield differentials. So the key question for JPY crosses is whether the bond sell-off will continue here and the market feels that it can pile into risk and into short JPY positions or whether we reverse course.
Chart: EURJPY
For EURJPY, the strength yesterday will need to see the pair remaining well above 100 for this short term move to maintain its bullish credentials and possibly keep chugging higher toward the 200-day moving average. A reversal back below that level (note also the interesting light red tankan-sen line indicator currently in this area) and the bears will have an argument that the highs are in and that yesterday was merely a head-fake.
John J Hardy,
SAXO BANK