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EUR/JPY Bounces Back in Volatile Trading

EUR/JPY Bounces Back in Volatile Trading

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EUR/JPY reversed steep intraday losses of almost 1.5%. The pair finished the day in positive territory as FX markets reacted to Nancy Pelosi’s Taiwan visit.

Foreign Exchange markets gyrated wildly on Tuesday, as headlines regarding US House Speaker Nancy Pelosi’s controversial stopover dominated the action.

China is strongly against the visit to the contested island. The Chinese Communist Party (CCP) has been vocal in its condemnation, so much so, that Chinese Premier Xi Jinping warned President Biden that “those who play with fire will perish by it,”.

The Japanese Yen was well-bid in the morning on fears that Pelosi landing in Taipei would spark an immediate retaliation from China. However, China’s muted response (so far) helped risk assets reverse earlier losses. Subsequently, the safe haven Yen buying gave way to selling later in the day. As a result, EUR/JPY recovered a key level of technical support.

The Euro to Japanese Yen rate exchange rate has declined steadily over the last month. At yesterday’s 10-week low of 133.40, the Yen was almost 7.5% higher vs. the Euro than in June. The Euro’s bounce has trimmed that loss down to -6.0%. However, it remains to be seen if the recovery is sustainable, or simply a knee-jerk bounce from support.

Although, the market’s biggest fears are yet to materialize, the fluid situation will keep traders on their toes in the coming days. On August 4, the Chinese Liberation Army (CLA) will conduct live-fire drills in 6 zones surrounding Taiwan. With this in mind, we can expect volatility to remain high in the immediate future.

Euro to Japanese Yen Outlook

The daily price chart shows yesterday’s sell-off dragged EUR/JPY below the significant 200-DAY Moving Average (DMA) at 133.71 (pink line) for the first time since March. the 200 DMA gauges a market’s long term-momentum.

Technical traders consider a close below the indicator as extremely bearish. Notably the 200 DMA aligns with several support and resistance levels.

As long as the price remains above the 200 DMA, the Euro may attract tentative buying. Whereas, a close below the important indicator could encourage technical selling. In this event, an extension into the 128.00 – 130.00 trading range is more than possible.

EUR/JPY Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.