A big risk-off day in the markets, coupled with more European business sentiment survey data coming soon makes this channeling pattern on EUR/JPY one to watch for the next session or two.
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Fresh Market Headlines & Economic Data:
- U.S. private payrolls growth slows in September: ADP
- Global Manufacturing PMI signals further deterioration in September
- UK PM Johnson makes final Brexit offer to cool EU reception
- Irish PM says what he is hearing on UK Brexit proposals not encouraging
- Johnson’s ‘final Brexit offer’ set for a thumbs-down from Brussels
- Japan’s monetary base increases by 3.0% in Sept. vs. 2.8% in Aug.
- Japan Consumer Confidence Index (SA) in Sept. was 35.6, down 1.5 points m/m
- Swiss consumer prices fell by 0.1% in September
Upcoming Potential Catalysts on the Forex Calendar:
- Australian Services index at 11:30 pm GMT
- New Zealand Commodity prices at 1:00 am GMT (Oct. 3)
- Australian Trade balance at 2:30 am GMT (Oct. 3)
- Fed’s Evans speaks in Madrid at 2:45 am GMT (Oct. 3)
- European Services PMI updates starting at 8:15 am GMT (Oct. 3)
- U.K. Services PMI at 9:30 am GMT (Oct. 3)
- Euro area PPI & Retail sales at 10:00 am GMT (Oct. 3)
- U.S. Job cuts at 12:30 pm GMT (Oct. 3)
- ISM Services PMI at 3:00 pm GMT (Oct. 3)
What to Watch: EUR/JPY
EUR/JPY makes it to the top of our watchlist today with this simple channeling pattern on the one hour chart above. Since the end of September, the market has been in a slow grind lower, gradually growing a bearish bias just under the 118.00 handle.
This setup works perfecting with what is likely the market theme for the next few sessions, i.e., a slowing global economy that has been refocused upon after the latest global PMI data–bullish for the yen short-term given its “safe haven” status. And specifically for the euro we’ve got more PMI data just ahead that will likely strengthen the argument of a slowdown in the Euro area.
If you’re bear on EUR/JPY, the current conditions are in your favor, but the market is testing a minor support level area the 117.50 level that could be a short-term speed bump for the bears. Waiting for a bounce to the top of the descending channel (roughly around the 118.00 handle) is the conservative entry strategy you may want to consider, but for the more aggressive, shorting at current levels up to the top of the channel with nibbler positions makes sense as well.
The bull case for EUR/JPY is incredibly weak right now, other than potential profit taking in the next session or too if 117.50 continues to hold and Euro area services sentiment is better-than-expected. A better potential R:R would be to wait for a retest of the bottom of the descending channel lower (around 117.00 – 117.20) but given this is a countertrend setup, it’s probably a good idea to keep your risk small in this situation.