It was all about the Yen yesterday in the aftermath of the Japanese general election, with EUR/JPY gapping almost 150 pips up from Friday’s NY close but then closing the gap perfectly through the day. USD/JPY followed a similar trajectory without actually closing its gap and the other majors were relatively subdued, dependent on flows in the Yen crosses.
Dealers say that corporate and real money flows have dried up significantly and with Sovereign players also usually absent at this time of year, it will be down to the speculators to keep the markets moving.
USD/JPY traded to a low of 83.60 last night, not quite a ‘gap closure’ but perhaps good enough (see chart) as it was only 10 pips shy of the NY close from Friday. Resistance should be firm at the 84.15 prior highs as well as yesterday morning’s spike highs at 84.40. I’d expect range trading today inside these levels.
EUR/JPY went one better by perfectly closing its opening gap back to 109.90 before bouncing (see chart). This is usually seen as quite a bullish event but on the other hand we can now expect to see heavy trailing stops below 109.75ish. Volatility should remain high, with the market running heavy long positions as we enter the dangerously thin markets around the Christmas and New Year holidays.
EUR/USD has been very quiet for the last 24 hours, consolidating in a 30 pip range between 1.3145/75 (see chart). There is no technical sign of any topping formations developing so bulls will be feeling quite comfortable. Once again, much will depend on what happens in EUR/JPY.
AUD/USD has also been reasonably quiet over the last 24 hours, dependent on AUD/JPY for flows and direction. The fact that the break-up level at 1.0510 has held firm so far will be comforting to the bulls, but it also ensures that heavy stops will be waiting below 1.0500. If you like volatility, look elsewhere would seem to be the message here.
Cable has been quietly bid over the last few sessions but dealers report that option players and ACBs still have selling interest between 1.6250/1.6300 (although this could be cancelled at any time due to holiday period).
Good luck today.