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EUR/JPY: Upside rebound bias in play as risk appetite improves

  • EUR/JPY has moved into a phase of consolidation, drifting from the pivot located at 123.37 to a current high of 123.92.
  • EUR/JPY buoyed by improved risk tone following Friday's markets. 

EUR/JPY rallied from the flash crash lows and drifted higher from the 122 handle to a recent high and towards the 100-hr SMA. The cross is through the pivot and is taking its cues from the risk mood on the street. Investor spirits were lifted at the end of last week on a number of counts, and the cross tracks the performance of stock prices closely, which have seen a bounce on the back of various news wires. 

The fact that the Fed is putting on the breaks, data dependent, is positive for risk appetite and stocks which has underpinned the correction of the flash crash lows. The nonfarm payrolls result was also a positive for risk, coming out in stark contrast to a series of negative data of late. Meanwhile, hindering the euro, are data points that are not encouraging such as the recent PMIs. 

Looking ahead

Attention will be on Brexit and Sino/US relations from this point on as well as the ECB minutes. With the US and China sounding as though they are back on track with trade talks, risk mood should remain elevated and support the upside in the cross.

"Minutes from last month's ECB policy meeting are released. Key to these minutes will be the discussion around the risks to the forecasts, as well as any hints about the direction the Governing Council's forward guidance might take as rate increases become closer in late 2019. We'll also be looking for any discussions on TLTROs," - analysts at TD Securities explained. 

EUR/JPY levels

Analysts at Commerzbank explained that EUR/JPY hasd seen a major spike lower that has eroded the 2012- 2019 support line at 119.31 – the recent low was 117.845. However, they also argued that the move looked exhaustive and they would expect to see some near term consolidation. "Rallies will find initial resistance at 124.62 the May low and while capped here a negative bias will remain."

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