EUR/JPY: Rejected at key Fib, Eyes 200-MA at 137.10

The common currency ticked higher across the board since the beginning of the current month, largely on account of the rise in the German Bund yields and broad based USD weakness seen post Non‐farm payrolls report released last Friday.

The EUR/JPY pair jumped from 135.00 to print a high of 141.04 last Thursday. A minor correction to 139.00 was once again followed by fresh bids, which took the pair back to 141.00 levels. However, the pair failed to extend the rally over and above 141.00 and fell back to 139.00 levels as the Bank of Japan governor Kuroda expressed a low possibility of a further depreciation in the Yen’s REER. His comments triggered a broad based rally in the JPY, pushing the EUR/JPY pair well below 139.00 levels.

As of now, the pair is trading at 138.90 levels. The pair could drop to 137.10 (200‐DMA) ahead of the FOMC meeting next week as–

Bund rout likely to halt ‐ The German 10‐year Bund yield rose above 1% on Wednesday, its highest since September 2014. The markets had begun speculating about the ECB’s QE program back in September 2014, due to which German Bunds and the bonds across the Eurozone plummeted to record lows. The ECB finally began purchasing bonds worth EUR 60 billion per month from March. 9, post which a bond market rout pushed the 10‐year German yield from the record low of 0.049% to a high of 1.05%. Consequently, buy the rumor, sell the fact trade could have completed and we are likely to see the 10‐year yield stabilizes in the range of 0.8%‐1.00%. Hence, the markets could once again focus on the rate outlook and ditch the EUR.

On 4-hour chart - Double top breakout

1. The pair faced rejection, twice around 141.00 levels. On the daily closing basis, the pair failed twice to close above 61.8% Fib R of 149.76‐126.08 located at 140.70.

2. On the 4‐hour chart, the double top breakout was seen in the previous session, although the pair bounced back above the neckline at 139.01 only to break below the same in the US session today.

3. The daily RSI has turned lower from the overbought zone with a bearish divergence, while the hourly and 4‐hour RSI indicate more losses to come.

4. A close below 139.01 of the current 4‐hour candle shall open doors for a double top breakout target of 137.00‐137.10 (200‐MA).

5. The immediate support is seen at 137.92 (50% Fib R of 149.76‐126.08), followed by a major support at 137.10 (200‐DMA).

6. The bearish outlook would be at a risk in case the pair sees a break above 140.00. However, only a daily close above the same would confirm further bullishness in the pair.