A look at the EUR/JPY and its equities correlation

The EUR/JPY has formed a Triangle pattern on the 60-minute chart, with prices squeezed into a narrow trading range between 125.55 and 125.05. The current market support above the 125.00 “big figure” level indicates that buying support exists here, since prices first broke higher through the level on April 19 (1). This makes 125.00 a “common number,” meaning it has at one time acted as both resistance and support. Bottom line: Traders are watching – and reacting – at this level.

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The 60-minute EUR/JPY is currently moving in narrow range within a sideways market cycle, confirmed by the one-bar Initial Trend reading, and this sideways market cycle is an ideal environment for momentum breakouts or breakdowns. The current strength of U.S. equities on the short-term intraday charts could help discern the direction of the EUR/JPY’s eventual break.

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This pair tends to reflect the same risk appetite or risk aversion seen in the equities market, and often moves directionally with equities when it is the dominant driver of market psychology. In other words, when the stock market (and its related news) moves the markets, the EUR/JPY pair will likely move sympathetically with both equities and the US500. Since there is a Rising Wedge breakout on the US500 (also known as the S&P500), equities are surging higher with a price breakout through resistance at 1,208 (R). Look for the EUR/JPY to find buying support along 125.00, and to test the Triangle pattern’s resistance for a potential momentum breakout (support at 125.00 is the key to a move higher here). To confirm this bullish intraday trend, also keep an eye on the US500’s support at 1,204.

Charts courtesy of Autochartist

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