By Russell Glaser
To continue with a previous analysis of the EUR/JPY, the pair continues to move higher prior to the release of the ECB interest rate announcement. Due to the sharp appreciation the pair, technicals show the pair may be overbought and faces a risk of a pull back on a buy the rumor, sell the fact.
Expectations for rising interest rates in the EU continue to support bids for the euro. Should ECB president Jean-Claude Trichet announce today the ECB’s intention to continue the tightening of EU monetary policy the euro will garner further support. However, the ECB says it never pre-commits to interest rate increases. Therefore, there is a risk of a buy the rumor of the interest rate hike and a sell the fact at the release which could hurt the euro in the short term and trigger profit taking on long EUR/JPY trades.
A resumption of the carry trade has the yen on its back foot both against not only the euro but also versus the pound, greenback, and Aussie dollar. The coordinated intervention by the G7 nations is not the only factor for the decline of the yen but it certainly was a trigger for the current deprecation of the yen versus the majors.
Looking at the technicals, the weekly chart shows the pair paused on Friday at the 119.60 resistance level only to charge higher this week to a high of 122.60. Stochastics on both the daily and the weekly show the pair is overbought but rising momentum hints at future gains in the pair.
As such, traders may want to raise their stop below last week’s high at 119.60 or take profit on profitable trades. For future trades, traders should be targeting a range between 127 and 128 which falls between the 2009 summer lows and the April 2010 high. Mid-term targets are 134.30 and 138.50. A breach of this level would target at the 2007 low/pre financial crisis near 150.00.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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