EUR/JPY Technicals – Cypriot woes present strong potential either side

This Cypriot lark is really dragging on. Yesterday’s scheduled parliamentary vote for the proposed bailout levy has been voted to be postponed to today at 16:00 GMT (12:00 EDT and 12:00 am SGT). To prevent any bank runs (e.g. depositors withdrawing all their funds), Cypriot banks are ordered to close and are only reopening on Thursday – giving politicians additional 2 days buffer to resolve all their issues. Currently on the table is a revised proposal that would help smaller depositors while taxing (or seizing depending on your perspective) larger depositors at a higher rate. No matter how the Cypriots cut it, Euro-group wants to see 5.8 Bln Euros and they are not willing to budge. However that is not the only option available, there are reports of Russian private companies seeking to bailout Cyprus in exchange for gas exploration rights. There hasn’t been any official offers of assistance from Kremlin though Prime Minister Putin has came on record to lambast the “unfair, unprofessional and dangerous” bailout package EU has offered. Cypriot Finance Minister Michael Sarris will be traveling to Moscow on Wednesday to discuss this issue with the Russian higher ups.

Hourly Chart

Market has recovered quite significantly after the huge drop yesterday. A large part can be attributed to ECB’s Jörg Asmussen who tried to assure the market that the situation in Cyprus is “unique” – and we should not see such arrangements spilling over to Italy and Spain. ECB’s Nowotny echoed the same views, saying that this bailout is “exceptional”. It seems that ECB leaders are trying to draw a clear line between Cyprus and the rest of the EU nations requesting for bailouts, though IMF and EU has been relatively mute since the initial announcements. Regardless, these affirmations have eased sentiments somewhat and EUR/JPY has climbed more than 200 pips from the recent lows, though price is still firmly below the recent swing low back on 14th Mar.

Technicals are still bearish, despite the recent bearish Evening Star pattern (near today Asian opening session) being invalidated quickly. Price has also pushed above the current Kumo which underlines the strength of the bearish recovery. However, Stochastic reading is entering Overbought just below the previous swing low. As long as the swing low holds, the breakout will remain in play, though a break above 124.50 may accelerate bullish momentum faster towards yet more resistances as seen in the chart.

Daily Chart

Nothing has change much from yesterday via the daily chart, though price appears to have found interim support via the Kijuu-Sen (red line) but is still trading within current Kumo – which suggest uncertainty. This uncertainty outlook fits nicely into our fundamental situation right now. Depending on the final terms of the bailout deal, we could easily see price breaking higher from the Kumo to test 126.0, which is the previous ceiling and the intersection/apex of the 2 trendline/triangle. A bullish breakout from there will potentially be explosive, potentially with strong bullish acceleration above the Feb highs. Conversely, a negative outcome may easily result in a fall below 121.0 and confluence with the Senkou Span B/ Kumo bottom. Stochastic is in favor of downside scenarios, though technical traders may be interested to note that Dec trough, which is near current levels pointed to the start of a strong bullish breakout instead. As such, possibilities for both downsides and upsides remain open and traders will do well to keep a close watch on the Cyprus outcome for any strong directional indication in the near future.

More Links:
EUR/USD – Takes a Breather and Settles Around 1.2960
USD/JPY – Volatile as Pair Tests 95 Level
Today EURO And Yen Are Both Losers

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