Chart of interest - EUR/JPY
After a mammoth rally from 94.00 to nearly 128 since mid-2012 the EURJPY cross is showing signs of fatigue.
Breaking down the component legs, the JPY has weakened massively (USD/JPY 78 to 97) over the same period, firstly on expectations that new PM Abe would gain power and bring with him super easy monetary policy ideas and then a secondary rally on expectations that Abe would install the like-minded Kuroda as his BOJ Governor. Since the inception of Kuroda the same sounds bites regarding easy policy have been forthcoming but the JPY has actually strengthened. Is this the biggest ever example of the old adage ‘buy the rumour, sell the fact’?
Looking at the EUR leg, the EUR simply looks awful. The Cyprus ‘precedent’ hangs heavily, manufacturing indexes remain mired in heavily negative territory and constant growth downgrades have been forthcoming. Indeed ratings agency S&P today lowered the Eurozone growth forecast to -0.5%, increasing the recessionary outlook.
Moving to the charts, the brief rally on the Cyprus resolution Monday was quickly reversed, the price action tracing out the bearish engulfing day which augurs strongly for more losses ahead. Supporting the bearish stance the 10/20 day moving average are crossing over to a negative alignment. On the shorter timeframes my ‘model’ has done a stellar job of capping gains and is currently pushing down suggesting strong resistance lies at 122.70/123.20 and falling.