Chart of the Day EURJPY
EURJPY - EUR: It looks like a risk-off day as market players are watching for potential Iranian reprisal following the US killing of a top Iranian military general Soleimani. This contributed to the S&P posting its biggest decline in a month as UST bonds rallied to push the 10-year bond yield down 9bps to 1.79%, whilst gold prices rose to $1,588 an ounce (highest since April 2013) on safe haven concerns. Essentially, the risk of military escalation cannot be discounted at this juncture as the Iranian government has said it would no longer abide by the uranium enrichment limits, while US president Trump told lawmakers he is prepared to strike Iran “in a disproportionate manner” if there is retaliation against any US targets. US President Trump and his Administration are actively trying to cap USD upside both via firing warnings to the ECB and cajoling the Fed to cut again. Narrower US-EZ growth differentials with USD negative may lead EUR long term volatility rebound.
JPY: There's been plenty of demand for the JPY in recent days. Initially, we had seen the JPY come back into favour on broad based US Dollar selling into year end. More recently, it's been about escalating geopolitical tension between the US and Iran. It is noteworthy that we have not witnessed any follow through demand for the JPY this morning inlight of the geopolitical developments of the weekend. The new economic stimulus package announced in December is to add about 0.3% to GDP growth in 2020. It seems unlikely that the BoJ will be leading the charge in a dovish direction by G10 Central Banks. Rather, any further BoJ easing will likely be reactive to ECB/ Fed easing and therefore likely following JPY strength.
From a technical and trading perspective, EURJPY appears to be carving out a medium term inverse head and shoulders pattern. While 120 continues to attract bids, even in this more risk off environment, conviction is given to the potential for the reversal pattern to play out. Bulls will look for a move through 121.50 to add further support to the bullish bias, a close above 122.75 would suggest higher prices in the first quarter of 2020, broadly in line with the constructive view expressed in the EURUSD Q1 2020 Outlook.
Note: In the last 43 years, the EUR has set 12 lows and 15 highs for the year in January. A 62% success rate is not bad considering the demands of this condition and proved successful in 2019 as the high set on January 10th 2019 proved to be the high for the entire year.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!