EUR/JPY Technicals – Muted response from Cyprus Bailout

Even though EUR/JPY was the biggest loser last Monday after the levy for Cyprus bailout was announced, the same currency pair failed to recover in spectacular fashion after Cyprus managed to secure bailout funds in a re-negotiated package. This new package will leave depositors below 100,000 EUR untouched, but may tax larger depositors at a higher rate. There are no official figures at the time of writing, though some reports are coming out saying that the top bracket will be taxed a hefty 30%, 10% more than the original 20% proposal.

From the reaction of EUR/JPY, one may be forgiven to think that market is not truly pleased with the outcome. However, if we look across different risk assets, the contrast is stark – Japanese Nikkei closed at 1.69% higher, HSI coming in at +0.61%. European stocks also opened higher with FTSE +0.64% and DAX +1.14%. Risk currency AUD/USD has also broke 1.045 and is trading at 2 month highs. Yes, this solution of taxing the ultra rich is not the best solution, but certainly market isn’t entirely oppose the idea, as proven by the various examples given.

Hourly Chart

Price is currently barely finding support around 123.0 round figure, and has given up most of its early gains. Despite the depressing outlook that is corroborated with Stochastics showing a bear cycle, price may still find support in the form of rising trendline. Below the trendline, the previous swing low around 121.5 – 122.0 may also provide ample support as price has been locked in a range from 121.5 – 124.5.

Daily Chart

Long-term chart shows price being squeezed towards the Triangle apex. This triangle is also seen via the hourly chart above, which demonstrate the relevance short-term chart may have with regards to long-term direction. An eventual breakout in either direction seems inevitable as pressure builds at the apex. Stochastic suggest that readings may continue lower as they clear their own “support level”, hinting that there may be some more room for the bears to move. However, a full bearish bias may preferably need price to clear Feb’s swing low and perhaps even 118.0 for longer-term correction. This precaution is in-line with the fundamental threat that we are facing – unknown BOJ.

Though BOJ’s action has been largely muted recently, there remains the possibility of new Governor Kuroda to throw down the gauntlet during his 1st official decision making session. Till now, he has been throwing the same rhetoric which is not helping Yen to depreciate. Nonetheless, markets will still remain wary of any potential Yen weakness as long as Kuroda keep his cards close to his heart. Certainly, without any clarification on further plans, it is unlikely Yen will weaken any further from here, but the flip side is that Yen bulls will not dare to buy into Yen heavily with this huge question mark hanging.

Therefore, a move back below 118.0 will most likely be in-line with future big market events – BOJ disappointment and/or Euro-zone catastrophic failure. Either news would have long bearish effects which may bring EUR/JPY lower towards 118 and potentially beyond, in-line with the technical setup mentioned above. It is also entirely possible that fundamental events may push EUR/JPY much higher. Levels to watch out for would be 128.0 which will signal a return to bullish momentum should the level be broken.

More Links:
EUR/USD – Placing Pressure on the Key 1.30 Level
Week in FX Europe – Another Last Minute Houdini Act from The ECB?
AUD/USD – Consolidating Well Around 1.0450

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