EUR/JPY remains under pressure despite tentatively finding key technical support from the 129.18 level. Downward pressure may remain strong for the pair as the market consensus view supports significant capital outflows and record low yields from the euro zone.
A weaker yen has been positive for Japan, but the domestic economy is gaining momentum and we may see a rotation away from export driven policy towards one that supports a domestic driven economy. It will be important to see if improvements happen for wage and consumer spending in Japan. Upbeat data could help support a rally with the Japanese yen.
Early in Asia EUR/JPY continued its bounce higher from the noted support level after a Japanese report showed that Core machinery goods contracted less than expected. The January reading printed -1.7% m/m and still shows that businesses are hesitant to spend. Major resistance will come from the 131.50 region.
The weak yen trade has been supportive for the export driven part of the economy, but we may shortly see the Japanese government shift policy a little to support the domestic driven part of the economy. For the short- and medium term trends, downward pressure may remain strong for euro-yen. Eventually, we may see a bullish butterfly pattern form around the 127.50 region. If that level does not provide an immediate reversal, we could see the selloff finally find support around the 122.00 zone.
The trade: Sell EUR/JPY at 129.70 with a stop loss at 130.70 and a take profit at 127.70. The Risk/Reward Ratio is 1: 2
Edward J. Moya
WorldWideMarkets Online Trading