EUR suffered strong losses yesterday due to lower than expected PMI data across France and Germany. JPY strengthened on the other hand due to risk aversion flows and Kuroda’s pussyfooting in his first address to the public as BOJ Governor, choosing to sprout similar rhetoric drone instead of telling us what plans he has. This sound like the perfect recipe for EUR/JPY to collapse, yet strangely, EUR/JPY failed to forge a new low from this latest debacle.
After Monday’s gap, price managed to close the gap (barely) yesterday, after FOMC dovish statements helped pushed risk currencies moderately higher. The bigger push for EUR was attributed to rumors and reports about Russia’s willingness to step in and redeem Cyprus from ECB’s bailout package. These 2 development pushed price higher but failed to overcome the gap convincingly, and is a technical bearish signal. Price fell below 124.0 on the PMI data/BOJ announcement, below the 1st recovery on Mar 19 and signaled the sell off as price seek lower objectives. However, bullish resilience remain, allowing price to be supported by the newly formed rising Channel.
Price is silently pushing higher highs and higher lows, a hallmark of uptrend, and that is strange considering that EUR/JPY should be a strong fundamental candidate for bearish setups. Perhaps bears may have overextended themselves on Monday with the 200 pip gap and we’re still seeing lethargy from bears as the rest of the market normalize themselves.
Bearish pressure remains though. Daily chart suggest that price is sitting on the rising trendline. A break below the trendline and preferably below 122.0 round number/confluence with early Mar ceiling may accelerate bearish momentum as the onset of a bearish breakout. Stochastic readings appears to be pointing lower, and is below the previous trough back in Dec. March highs has also failed to test the highs of Feb, and suggest that bullish momentum is decreasing, and perhaps even retracing. This long-term bearish outlook seem to align better with fundamental analysis explained above – weak Euro-zone and overextended JPY weakness.
Nonetheless, long-term outlook does not necessary negate short-term trend as invalid, as there are always good fundamental/technical reasons why the market is behaving this way. As mentioned, bears being exhausted post gapping is just one of the technical reasons why bearish breakout on the Daily may have to wait just a little while more. Fundamentally, should alternate solutions to Cyprus’s bailout present themselves, we could easily see EUR recovering strongly. Positive risk appetite will also move JPY weaker and EUR/JPY will be one of the largest benefactor for upside movements from this. This short-term development also does not negate what Long-term fundamentals/technicals are telling us: Weak Eurozone, risk of pullback of Yen’s weakness remains and continue to threaten short-term bulls.
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