EUR/JPY Sell-off Pauses As Support Holds

Technical Sentiment: Bearish Key Takeaways

• German Wholesale Price Index, released Monday morning, in line with consensus at 0.1%;
• Euro fell down to 135.5 against the Yen on Monday morning before bouncing back above 136;
• EUR/JPY is going to hover in this area until Tuesday, when weak German and Euro data might spark another bearish leg below the weekly support line.

Euro slipped to a fresh 11-month low against its Yen counterpart on Monday morning, quickly followed by sluggish recovery during the European session.

  Technical Analysis

EUR/JPY closed last week on a very bearish note after two +100 pip sell-offs on both Thursday and Friday. The long term downtrend, currently making lower lows and lower highs, indicates a break and close below the weekly support line at 135.70 might be just around the corner.

So far on Monday, price action has been grinding a moderate recovery after a brief stint down to 135.50, where EUR/JPY bounced off October 2013’s resistance line. The rest of the day is expected to remain relatively calm due to U.S. Bank Holiday. Euro is currently trading around 136.15 against the Yen, with upside potential likely capped around 136.65 (last week’s support line). A continuation above 136.65 could trigger a prolonged consolidation phase, albeit unlikely at this point.

On Tuesday several medium and high impact releases are due, mainly French CPI, German ZEW Economic Sentiment, and Eurozone’s Industrial Production and ZEW Economic Sentiment. All of these have bearish expectations

A break and close below 135.50/70 will mark EUR/JPY’s exit out of August / September’s trading range, opening downside potential towards 133.50, followed by 131.00/20 in the long term.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets