The BOJ has been in jawboning mode recently, so I’m looking at this short yen play that’s gaining some momentum.
Think there’s still a chance to jump in this EUR/JPY rally before the end of the week?
Before we talk about the setup, check out the major headlines that moved the markets during the Asian session:
Fresh Market Headlines & Economic Data:
- U.S. economy contracted 32.9% vs. projected 34.5% drop in GDP for Q2
- Japan’s jobless rate improved from 2.9% to 2.8%
- Japanese preliminary industrial production recovered by 2.7% after earlier 8.9% slide
- Chinese official manufacturing PMI up from 50.9 to 51.1 in July
- Chinese official non-manufacturing PMI dipped from 54.4 to 54.2
- Australia’s PPI fell by 1.2% in Q2 after earlier 0.2% uptick
- Australian private sector credit sank by 0.2% vs. projected 0.1% dip
- Japanese consumer confidence index improved from 28.4 to 29.5
- Japanese Ministry of Finance warns against rapid JPY rise
Upcoming Potential Catalysts on the Economic Calendar:
- French flash GDP at 5:30 am GMT
- U.K. Nationwide HPI at 6:00 am GMT
- German retail sales at 6:00 am GMT
- Swiss retail sales at 6:30 am GMT
- French consumer spending and preliminary CPI at 6:45 am GMT
- Euro zone flash CPI readings at 9:00 am GMT
What to Watch: EUR/JPY
EUR/JPY recently busted out of its symmetrical triangle pattern, indicating that bulls have taken the upper hand.
The pair also seems to be completing its pullback and has gathered enough buying energy to sustain its climb. Note that the triangle spans around 150 pips in height, so the resulting rally could be of the same size.
The Eurozone has a handful of mid-tier reports lined up today, and stronger than expected results could be enough to lift EUR/JPY back up to the swing high and beyond.On the flip side, the yen has been under some downside pressure after the Japanese Ministry of Finance warned against the rapid yen appreciation.
If you’re counting on a larger pullback, better wait for a retest of the broken triangle resistance to hop in. This coincides with the 100 SMA dynamic inflection point and 61.8% Fibonacci retracement level, where more bulls might be waiting.
Jumping in at market wouldn’t be such a bad idea either, as long as you take note of the average EUR/JPY volatility in setting your exit levels and make sure you practice proper risk management!