The EUR/JPY is finding support along with all the yen crosses as the resignation of Japanese Prime Minister Yukio Hatoyama and a return of risk appetite has the Asian currency under pressure. However, we haven’t seen the same level of follow through in the pair as its counterparts as bullish Euro sentiment remains fleeting with lingering concerns over the debt crisis. Signs that the global recovery is maintaining its current pace has helped offset concerns that the issues in Europe could become a broader contagion. Converging support and resistance levels could lead to increasing consolidation for the pair as markets debate which is the greater force, making it a scalping target.
Key Technical Levels
The 20-Day SMA at 113.76 could become formidable resistance as the pair has traded below it since 04/16/10. The technical level is in a descending pattern and is poised to converge with support at 110.00. The psychological level has held off the recent bearish onslaught driven by the debt crisis adding to its validity as a barrier. A short-term rising trend line offers target levels for scalpers to enter and exit positions. However, a break of either longer-term barrier could lead to a break out as the pair is still vulnerable to spikes in volatility.
Quantitative Metrics
The EUR/JPY has seen its Bollinger band width begin to narrow as price action for the pair has begun to settle into a range. However, at 1149 pips it remains at the top of the most traded pairs and is an indication of the variance that the pair can potentially experience. An elevated ATR at 290 pips is also amongst the highest levels of volatility and is a major red flag for scalpers. Meanwhile, one week implied volatility readings have held steady as there is still lingering concerns in the market over the issues in Europe.
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To discuss this report or be added to the email list, contact John Rivera, Currency Analyst: jrivera@fxcm.com
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