EUR/JPY, GBP/JPY Breaking Support as European FX Extends Slide
There have been few times over the past two-plus years, since ECB President Mario Draghi's "whatever it takes" speech that have stoked the embers of panic in global markets. As the Euro-Zone backslides towards the third leg of its recession, weak economic data out of the United States is sparking fears that a global slowdown is imminent.
As has been the case during classic 'risk off' episodes recently and spanning back to the debt crisis days of 2011, the Japanese Yen tends to be an outperformer. True, Japan has its own issues; but the sheer volume of Yen in the system makes the low yielding currency a liquidity preference during times of financial stress.
Financial stress is more apparent today as several important price levels were broken in various instruments. The belly of the Greek yield curve (3Y-7Y) has started to join the 10Y at a yield above 7%, which has been the level at which international aid has typically appeared.
Help this round isn't guaranteed however, given Germany's lean towards contraction and domestic opposition in Germany for stimulus let alone additional international bailouts.
Pay attention to the JPY-crosses above all else in the coming days (the stretched long USD positioning in futures markets cloud the greenback's path forward). EURJPY and GBPJPY today both lost significant support levels from Q3. See the above video for technical considerations.
--- Written by Christopher Vecchio, Currency Strategist
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