Marshall Gittler
Trading Analysis
EUR/JPY
The dollar traded higher against most of its counterparts during the European morning Wednesday, recovering a large portion of yesterday’s losses following the disappointing retail sales data. The greenback was lower only against NOK and JPY, while it traded virtually unchanged against AUD. The main losers were EUR, GBP and SEK.
The euro depreciated the most against the dollar ahead of the ECB policy meeting, where President Draghi is likely to say that officials are planning to continue the easing programs as scheduled as risks to growth remain and inflation is subdued. This would banish talk that the Bank might start scaling back its asset purchases sooner and remove that upside risk to EUR/USD. Draghi may also get questions with regards to Greece’s debt problems. EUR/USD fell below the 1.0600 support (now turned into resistance). A dovish stance by Mr. Draghi is likely to encourage the bears to pull the trigger for the psychological zone of 1.0500, I believe.
EUR/JPY fell sharply after hitting resistance at 127.65 (R1). Currently the rate is headed towards the support area of 126.00 (S1), where a clear break is likely to pave the way for the psychological territory of 125.00 (S2), also marked by the low of the 13th of June 2013. After failing to break above the strong hurdle of 131.40 on the 6th of April, the rate started sliding and the break below 128.35 (R2) signaled the completion of a double top formation. Consequently, I believe that the short-term bias is to the downside. Our daily momentum studies support my view and amplify the case for further declines. The 14-day RSI slid after hitting resistance at its 50 line, while the daily MACD, already negative, has peaked and fallen below its trigger. As for the broader trend, I still see a longer-term downtrend. EUR/JPY is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
Support: 126.00 (S1), 125.00 (S2), 123.85 (S3).
Resistance: 127.65 (R1), 128.35 (R2), 129.45 (R3).
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