On watch in EURJPY

A relief rally for risk assets into the end of last week as the U.S. and China agreed on a partial trade deal and hopes the Brexit saga is coming to a long-awaited close. However, the response in Asia this morning has been one of lukewarm enthusiasm. Partly this is due to lighter participation because of national holidays today in Japan (Health- Sports Day) and Columbus Day in the U.S. this evening.

A relief rally for risk assets into the end of last week as the U.S. and China agreed on a partial trade deal and hopes the Brexit saga is coming to a long-awaited close.

However, the response in Asia this morning has been one of lukewarm enthusiasm. Partly this is due to lighter participation because of national holidays today in Japan (Health- Sports Day) and Columbus Day in the U.S. this evening.

The last three trade truces have resulted in escalation and traders appear mindful that the U.S.- China trade deal is not expected to be signed until the APEC meeting in Chile in mid-November, leaving ample time for the trade deal to fall apart in the interim.

Finally, if the exit terms of Brexit are not agreed by this Thursday, October 17, the UK government will legally be obliged to request a Brexit delay. While the chance of a hard Brexit now seems low, for FX traders who bought into last week’s GBP rally, it will be a nervous few days of watching for Brexit headlines.

Assuming, the trade truce holds and an end to Brexit is imminent, EURJPY is an FX pair that should rally. From a positioning perspective, last week’s IMM data shows the market increased its EUR shorts by 9k to 75k. On the JPY side of the equation, the market is long JPY.

Hence the market is positioned the wrong away around should EURJPY rally.

EURJPY Technical view:

The daily chart of EURJPY displays a rounded bottom and a possible inverted head and shoulders formation taking shape at the recent 115.86 low. The neckline or key layer of resistance that needs to break to provide confirmation of further upside sits 120.00 area. A likely level as well for those who are positioned the wrong way around in EURJPY close their positions.

Therefore, on a break and daily close above 120.00, I would expect to see EURJPY continue higher initially towards a cluster of resistance between 123.50 and 124.00.

On watch in EURJPY

Source Tradingview. The figures stated are as of the 14th of October 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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