EURJPY Offers Volatility Without Much USD Correlation

Since February 20^th, when the S&P 500 began selling off from its all-time highs, EUR/JPY has been trading in a volatile trading range between 116.12 and 121.40.  However, over the last 4 trading days, the pair has traded lower from 121.08 to today’s lows near 116.96, down almost 1.5% today alone.  Support doesn’t come in until 85/100 pips lower near 116.00, which is near the long-term downward sloping tending and they March 9^th lows.

Source: Tradingview, City Index

One reason for the move lower is because of USD/JPY, which has sold off from a recent high of 111.71 to today's lows of 107.00, while stalling between the 38.2% Fibonacci retracement level from the march 9^th lows to the March 24^th highs.  As of late, the pair has a high positive correlation with the DXY at +0.92.  A correlation coefficient of +1.00 means the pair move perfectly together in the same direction.  Currently, there is a close correlation.  Support is below at the 50% retracement level and horizontal support near 106.50. 

Source: Tradingview, City Index

The other reason the EUR/JPY is moving lower is because of EUR/USD side of the equation.  The pair has been moving lower since Monday’s open.  The EUR/USD traded up to the 61.8% Fibonacci retracement level from the highs on March 9^th to the lows on March 23^rd before turning lower.  Support is at today’s lows near 1.0900.  Notice how highly negatively correlated the EUR/USD is with the DXY.  The current reading is -0.99.  A correlation coefficient of -1.00 means the 2 assets are perfectly negatively correlated.  This is sure pretty close!

Source: Tradingview, City Index

With the EUR lower vs the USD, and JPY higher vs the USD (USD/JPY lower), it makes sense that the EUR/JPY would be much lower, especially with the high correlations that EUR/USD and USD/JPY have with the US Dollar.    However, when we take a look at the correlation of the EUR/JPY to the DXY, the correlation coefficient is only +0.27!  There is only a mild correlation to the DXY. 

Source: Tradingview, City Index

Here’s the point:

With initial claims tomorrow and Non-Farm Payrolls on Friday, the US Dollar currency pairs may continue to be volatile over the next few days.  If you are looking for a currency pair to trade, but don’t want exposure to the US Dollar, EUR/JPY is a pair to consider.