EUR/JPY bulls take back lost ground, but risks remain skewed to the downside in high volatility markets

EUR/JPY has made an impressive recovery from the lows of 116.56 to a high of 118.19.  There was a sell-off in Asia which sent USD/JPY to a low of 104.438 but the yen has since been bought back in choppy market conditions between the coming and going of comments out of Beijing and the US with respect to trade wars. 

Tradewar headlines back and forth

There were reports that phone calls had taken place over the weekend with China wanting to make a deal, but nothing was confirmed by China which caused a big spike in volatility. 

EUR/JPY tracks stocks and there had been a pick up in the US cash benchmarks which has helped to fuel a bid in EUR/JPY.  Meanwhile, however, we had the weakest headline reading for IFO since November 2012. Germany August Ifo business climate index arrived at 94.3 vs 95.1 expected, suggesting that Germany is heading towards a technical recession, which should keep the downside bias in play for the pair. 

EUR/JPY levels

EUR/JPY has rallied back to test the trendline resistance but is failing.  Analysts at Commerzbank explained that EUR/JPY is on the defensive but with a second 13 count and TD support at 116.36 they are cautious of blindly following this lower:

"Initial resistance is the 20 day ma at 118.55 and the 120.06 25th July low. Key short term resistance is the 55 day ma and the 3 month downtrend at 120.55/72. The market will need to regain this on a closing basis to reassert upside interest. TD support at 116.36 guards the 114.86 2017 low. The break lower last week saw the market erode a 2012-2019 support line and this leaves a negative bias entrenched while below the downtrend."