EUR/JPY: Defies gravity and corrects towards 38.2% Fibo and 119 handle
- EUR/JPY takes on bears all the way through to 38.2% fibo resistance area.
- Global stocks in a sea of red, market correlation broken down on Dollar weakness.
Despite risk-off markets and lower global equities, EUR/USD is +0.44% at the time of writing, recovering from a low of 117.67 and scoring a high of 118.93. Global equities are a sea of red. U.S stocks have hit new session lows today so far with Dow sliding more than 700 points and over 2.6%; Nasdaq falling more than 3%.
The European closes were as follows:
- German DAX -1.7%
- UK FTSE 100 -2.4%
- French CAC -2.2%
- Italy MIB -1.3%
- Spain IBEX -1.4%
This all follows a rout in Asia after the mixed stories with respect to China's retaliation to the recent tariff announcements by the U.S. administration as well as the PBoC fixing USD/CNY over 6.90 which sent the Yuan on a tear tot he downside vs the Greenback and markets into major risk-off mode.
EUR/JPY is usually closely correlated to global equities, so it is hard to see the crossable to sustain this correction. However, the Dollar has given back territory as markets price in the likelihood of a Federal Reserve rate cut as soon as September following today's miss in US data - The chance of a 50 BP cut in September is up to 39%. It was below 5% last week. This, in turn, is weighing on US yields and supporting EUR crosses higher. Subsequently, EUR/JPY is heading towards 38.2% Fibo and the 119 handle. Indeed, EUR/USD is up 0.91% as one of the strongest currencies along with the Swiss Franc, (risk-off). However, the eurozone is hardly a bright spot of economic prosperity and the European Central Bank is a dovish playbook, so it may be just a matter of time before EUR/JPY heads back on a more logical course with the 2017 low back in focus.
EUR/JPY levels
Analysts at Commerzbank explained that EUR/JPY accelerated lower at the end of last week:
"It has reached the 117.85 January spike low, we have a 13 count and it is possible that we will see some consolidation ahead of another leg lower. This guards the 114.86 2017 low. The break lower last week saw the market erode a 2012-2019 support line and this leaves a negative bias entrenched. Rallies will now find initial resistance at the 120.06 25th July low and the 20 day ma at 120.80. Key short term resistance is the 55 day ma and the 3 month downtrend at 121.70/63. The market will need to regain this to reassert upside interest."