EUR/JPY, GBP/JPY: Key levels with risks skewing to the downside

EUR/JPY: A break below the 50DMA could open the door to 163.57 support; 200DMA a key target for bears
GBP/JPY: Uptrend intact, but failure to clear 199.50 raises downside risks; watch 196 and 200DMA below
Both pairs showing fading bullish momentum, with RSI and MACD signalling potential downside

Overview

Big swings during the Presidential election decimated technical levels for many currencies against the US dollar. However, it was another story against the crosses, including the Japanese yen. Not only did some survive the burst of volatility, but many continued to be respected. With a quieter week ahead on the macro front, this note focuses on potential trade setups in EUR/JPY and GBP/JPY heading into the weekend.

US rates key to directional risks

Looking at lower-beta currencies like the euro and pound, US interest rate expectations continue to drive moves in yen crosses, especially along the short end of the Treasury curve. The chart below shows the 20-day rolling correlation between EUR/JPY and GBP/JPY against various US rate metrics, from Fed cut pricing through to 30-year Treasury yields. The takeaway: US rate expectations often have a bigger impact on the yen than on European currencies against the US dollar.

Source: TradingView

EUR/JPY keeling over

EUR/JPY looks heavy on the daily chart having broken the uptrend it was sitting in for much of the past two months. The price is threatening to fall decisively through the 50-day moving average which also coincides with minor horizontal support. RSI (14) is trending lower, indicating waning bullish momentum. MACD has also crossed over from above, confirming the bearish signal.

If the pair falls decisively through the 50DMA, traders could sell the break with a tight stop above for protection. Buying may be encountered around 163.57 where the price struggled to break through in the first half of October. If that were to give way, the 200-day moving average looms as a tougher test for bears.

Source: TradingView

GBP/JPY lacking bullish momentum

The technical picture looks less dire for GBP/JPY in the near-term with the price remaining in an uptrend first established in late September.

However, having been unable to clear resistance overhead at 199.50 over recent weeks, downside risks may be building. It’s yet to be completed, but the three-candle pattern resembles an evening star formation. RSI (14) is trending lower while MACD has rolled over, providing bearish signals on price momentum.

If the price were to break the uptrend, 196 is a level that has provided both support and resistance at points this year. Below, the 200 and 50-day moving averages are other potential targets, as is 189.59 and 188.00.

Alternatively, if we were to see the price break convincingly above 199.50, 201.95 and 203.85 are two levels of note.

Source: TradingView

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.