EUR/JPY Forecast May 29, 2014, Technical Analysis

The EUR/JPY pair fell during the session on Wednesday, but could not break below the hammer from last week. Because of this, it appears that the 138 level will continue to offer support in this market, but a break below there would in fact be a very negative sign. Even with the negative candle that we saw for the session on Wednesday, we are quite ready to start selling yet, simply because we don’t necessarily believe in the longer-term validity of the strength in the Japanese yen. We recognize that the Euro is in trouble, but this could be one of those moves that has more to do with Japan, and less to do with Europe. On a move above the 139.25 level, we are willing to start buying, but also recognize that a move below the 138 level would have this market falling apart and heading towards the 135 handle without too much in the way of that break down.

If we do get are move higher though, we recognize that the 140 level will be resistive, as it was once supportive. A move above there would in fact be strong, especially if we can get above the 140.50 level, as that could very well open the door to the 143 level, and then possibly as high as the 145 level given enough time. It really comes down to what the ECB does on June 5, which is the next meeting. That will be the longer-term driver of the value of the Euro, which of course would have a lot to do with this market. However, we recognize that moves between now and then well have more to do with the Yen as mentioned above.

The Japanese yen has formed stronger than anticipated, and in our opinion monetary easing out of the Bank of Japan is almost a foregone conclusion at this point considering that the Yen simply will not the value. This pair is one of the major ones that the Japanese watch, so you can bet that they will in fact be very concerned about this exchange-rate.