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EUR/JPY had a bullish session on Friday as traders continued to take the "risk on" trade in reaction to the idea that the central banks in both Europe and the United States are going to step in the markets and providing more liquidity. This of course is a "sugar high" for the markets, and this rally will more than likely not last. Adding to the pressure in this market is the fact that one of the key drivers is the fact that the European central bank should be easing.
This of course will weaken the Euro overall, and should see this pair begin to fall again. In a sense, we basically had a rally predicated on the idea that the Euro was still going to exist. Now that we have solidified its existence, we have to value it against other currencies. The fact that the central bank in Europe is so far away from tightening monetary policy, it comes as no surprise that the value of the Euro overall should fall.
It should also be noted that we slammed into what was once support, and then should be resistance at the 98 handle and failed. The candle isn't quite a shooting star, but there are enough shooting stars in various Euro related pairs that we feel very strongly that any move lower will send the Euro tumbling. This isn't necessarily a bad thing, as it is essentially the markets focusing on interest rate differentials again.
Although the Bank of Japan has their interest rate at almost zero does very little to dissuade people from shorting this pair, mainly because the European Central Bank will more than likely explore interest rates very close to the Japanese level. Also, Europe has countries that are entering recession, and quite frankly a couple of them that could be in a small depression. With this being said, it's very difficult to invest in Europe at the moment, and this of course will drive money away from the Euro itself. Eventually, the Euro will get cheap enough that it should help exports, but in the short time frame that we are talking about this currency pair should continue to fall.