USDJPY: China-Driven Safe Haven Demand Could Expose 120.00 Next

<p>It looks like this is really it for Greece, for real this time. Greece’s creditors presented a united, unaccommodating front last night, demanding that Greece […]</p>

It looks like this is really it for Greece, for real this time.

Greece’s creditors presented a united, unaccommodating front last night, demanding that Greece submit a new bailout proposal today for review over the weekend. German Chancellor Angela Merkel opined that there were “only a few days left to find a solution” and that she was “not especially optimistic,” while European Commission President Jean-Claude Juncker warned that creditors “have a Grexit scenario prepared in detail.” EU President Donald Tusk was even more pessimistic, stating that “Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system…[i]f someone has any illusions that it will not be so, they are naive.”

The market reaction to this latest escalation has been limited, with the steady trade in EURUSD hinting the market’s expectation that an agreement will be reached this weekend. Indeed, the latest lurch lower in the Chinese stock market (and the accompanying collapse in commodities) may be the bigger catalyst for global markets. In that vein, the Japanese yen is catching a big bid today, with the widely-traded USDJPY pair inching below a major support level.

Technical View: USDJPY

As of writing, USDJPY is trading all the way down at 121.40, well below previous support at 1.2200. More significantly, a close near current levels would represent a bearish breakdown from the pair’s six-week descending wedge pattern, which could turn the near-term bias conclusively lower. Looking to the secondary indicators, the daily MACD is trending lower and has now broken below its signal line, signaling an outright shift to bearish momentum, while the RSI has broken below its own corresponding descending triangle pattern.

In the short-term, a small bounce is possible off the 61.8% Fibonacci retracement at 121.20 (see chart), but if that key levels gives way, a continuation down toward the 78.6% retracement and key psychological support at 120.00 seems likely. Unless USDJPY sees a massive reversal later today (like the big turnaround we saw in EURUSD and US equities yesterday), near-term bulls will be remain on edge.

USDJPYDAILY7-8-2015 8-47-41 AMSource: City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.