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A very quiet start to the week for the currency markets, but we may have a solid short-term setup in EUR/JPY ahead of economic sentiment updats from Germany.

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 13032.89 +2.10%
FTSE: 6094.29 +1.54%
S&P 500: 3425.82 +0.85%
DJIA: 28195.23 +0.95%
US 10-YR: 0.627% -0.013
Bund 10-YR: -0.503% +0.004
UK 10-YR: 0.196% -0.011
JPN 10-YR: 0.021% -0.003
Oil: 42.66 +0.76%
Gold: 1953.7 +0.34%
Bitcoin: 11790.79 +1.02%
Ethereum: 406.52 +3.59%

Fresh Market Headlines & Economic Data:

S&P 500, Nasdaq at all-time highs on COVID-19 treatment hopes

FDA Issues Emergency Use Authorization for Convalescent Plasma as Potential Promising COVID–19 Treatment

Oil gains on storm-hit U.S. output and COVID-19 treatment hopes

Chicago Fed’s national economic index retreats in July from record-high in prior month

Statistics Canada says manufacturing sales up 8.7% in July

Total volume of New Zealand retail sales: -14.6% vs. -16% expectations

New Zealand extends Auckland lockdown, Australian COVID-19 cases fall to seven-week low

Bank of Korea hints at cut to 2020 growth forecast

Upcoming Potential Catalysts on the Economic Calendar

Bank of Japan Core CPI at 5:00 am GMT (Aug. 25)

German GDP q/q at 6:00 am GMT (Aug. 25)

German ifo Business climate at 8:00 am GMT (Aug. 25)

U.K. Retail sales balance at 10:00 am GMT (Aug. 25)

Canada Corporate profits at 12:00 pm GMT (Aug. 25)

What to Watch: EUR/JPY

EUR/JPY 1-Hour Forex Chart
EUR/JPY 1-Hour Forex Chart

On the one-hour chart above of EUR/JPY, we’ve got a short-term downtrend in the works that’s presenting a solid set of technical setups for the next session or two. We’ve also got potential mid-tier catalysts from Germany that could help volatility pick up in the short-term, but it’s likely directional bias will be driven mainly by broad risk sentiment for now.

If you’re a bull on the pair, the short-term trend is definitely against you my friend.  But if we do see a big positive surprise in the German ifo business data and a continued theme of positive global risk sentiment, then watch out for a break of the falling ‘highs’ pattern, likely a move above the minor psychological level of 125.50. Momentum traders could jump in if this scenario plays out, especially if the COVID-19 vaccine/therapy related headlines continue to improve.

For the bears on the pair, everything is working in your favor from the recent headlines of rising cases in Europe, disappointing European PMI updates, and technical setups.

On the chart above, we can see a clear falling ‘highs’ pattern down to 125.50, and after today’s bounce, it looks like another falling ‘high’ is forming around the major psychological level of 125.00. Stochastic is also signaling short-term overbought conditions, which could draw in technical traders further.

If you think we’ll see a shift in broad global risk sentiment over the next session and/or a disappointing round of German data, consider shorting at current levels up to 125.00 for a short-to-medium term trade.  And with a daily ATR of around 90 pips, that puts a potential stop above the next swing high right around the 126.00 handle. For shorter-term traders, a stop above today’s swing highs around 125.33 makes sense if targeting the next swing low around 124.42 for a decent short-term return-on-risk.