On a day where market is still feeling the sting following FOMC meeting minutes, Germany PMI did bulls no favors by coming in weaker than expected. February PMI Manufacturing came in at 50.1, versus expectations of 50.5. PMI for the service sector was more encouraging at 54.1, but fell even shorter of expectation of 55.5. Though a read above 50.0 represent gains, the growth recorded is certainly not enough, and gave bearish traders yet another excuse to short the Euro.
Yen has been gaining strongly due to safe-haven flows, and the impact is strongly felt in EUR/JPY, which has fallen around 150 pips from Asian high to current 123.2 levels.
5 Minutes Chart
Short-term chart suggest that price may have found a temporary bottom/consolidation with Stochastic reading forming a trough. Price action is also being restricted within a 20 pip corridor for the past 30 mins, which may be extended until the US market opening hours where traders will see if the risk-off sentiment continues.
Longer term chart shorts a potential breakout with price breaking below both the rising trendline and the Ichimoku Kijuu-sen. The next level of interest will be 123.0, which was the previous swing low in Feb and a break will open up support 2-300 pips lower closer to 120.0, nearer to the Kumo’s perimeter. Stochastic continues to be bearish without entering the Oversold region. Also, readings are now lower than the previous trough of Dec 2012. Readings has been steadily on the decline despite price inching upwards, and this is the first time readings have hit such low levels since the strong rally we’ve seen in Dec 2012.
Fundamentally, a fall in EUR shouldn’t come as a huge surprise to traders as data coming from the Euro-Zone has not been promising. Last week’s GDP was a wash for powerhouse Germany and France, and today’s French PMI is equally disappointing as the German one. On the other hand, BOJ’s influence on Yen appears to be waning against the strong tide of risk aversion strengthening safe haven currencies such as the Yen. This is a regular occurrence that we have noted in the past few years – BOJ vs Market, market always win. As such, if Euro-Zone Crisis starts to flood headlines once more, we can safely expect EUR/JPY to go down much further from here and a break below current Kumo may result in an acceleration of bearish momentum to bring us further lower.