The SNB’s decision to end keeping the franc weaker than 1.20 to the euro, is driving the recent collapse to the euro. Yesterday’s move triggered a 3.5% slide against a basket of 10 developed nations’ currencies. More money is expected to abandon the euro next week as the ECB is expected to announce its QE program at its January 23rd meeting. Today, the euro fell to an 11-year against the US dollar. Despite all recent weakness, today EUR/JPY is tentatively respecting both the 135.00 handle and the downward sloping trendline(shown in red).
Price action on the EUR/JPY weekly chart displays the third consecutive weekly plunge for the pair. After bottoming out from the July 2012 low at 94.10, this pair has spent much of the last three years in a major bull market rally. Price respected the 150 price barrier last month and the bearish move appears to be poised for a weekly close below the 100-week Simple Moving Average (SMA).
From a longer-term perspective, euro could continue collapsing and target 124.47, which is the 161.8% Fibonacci expansion level of the fourth quarter rally. Major resistance will come from the confluence of the 200-day SMA and the 50-week SMA at 140 zone.
The trade: Sell EUR/JPY 135.50 with a stop loss at 136.50 and a take profit at 130.50. The Risk/Reward Ratio is 1:5.
Edward J. Moya
WorldWideMarkets Online Trading