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.

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.

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

Disclaimer

TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)

Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.

Any advice provided is general advice only. It is important to note that:

• The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
• The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
• If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.