The Yen is the strongest currency today, up almost 1.5% against the dollar, 1.7% against the Pound and 1.2% against the Euro. AUD/JPY and NZD/JPY are also down big today, and have actually broken down below some key support levels, but EUR/JPY remains supported by its longer term triangle and the 100 day EMA, at about 128.50. The question then becomes whether AUD/JPY and NZD/JPY are foreshadowing an eventual breakdown of EUR/JPY, or if EUR/JPY’s support levels will spark a bounce in the Yen crosses.
The answer may in fact be “both”. After such a strong move today, a correction higher may be in store for the yen crosses, but such a bounce will have to be viewed as a selling opportunity. The chart below illustrates a general EUR/JPY strategy: buy near 128.50 (trend line and 100 EMA), targeting 131.50 (the upper trend line), before flipping short near that top trend line for a strong move lower, toward the 200 day EMA at 123.75. Should we see a daily close below the supporting trend line and 100 day EMA without a bounce, traders can simply take the small loss and flip short, with the same aggressive downside targets.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com