EUR/JPY Forecast for the week of December 10, 2012, Technical Analysis

The EUR/JPY pair had a slightly negative week as we went back and forth around the 106.50 level. However, the more important candle would be the hammer from the previous week that showed significant support at the 105 handle. Because of this, we actually welcome a pullback that shows signs of support at that level as it would be an excellent buying opportunity in what is obviously a bullish currency pair.

One of the main reasons we may have seen a little bit more softness than expected would have been the words that came out during the European Central Bank’s meeting this past week as Chairman Mario Draghi suggested that the idea of a rate cut was kicked around by various members of the committee. This caused the markets off guard, and as a result the Euro sold off rather drastically after those remarks.

However, this is inherently a risk sensitive currency pair, and it tends to rise with good news. The US jobs number was very strong during the Friday session, and as a result we did get a bit of a bounce. With this strong signal, is very possible that this pair continues higher as a result of the world’s largest consumer base picking up jobs. In fact, the Friday candle was a hammer which of course is one of the more bullish candlestick patterns that you can have.

We still like this pair, even if the Europeans look like they’re going to struggle. This is because the Bank of Japan is set to start training “unlimited Yen”, and as a result the Yen is set to weaken against most currencies, the Euro included. One of the most ironic things about this particular situation is that the actual trigger for much higher prices in this currency pair may actually come in the USD/JPY pair as the 84 level gets broken above. That is a major and massive resistance area that has been working against Yen depreciation for quite some time. If that gives way, this pair should absolutely skyrocket.