January has been a great month for volatility and also for directional trading. One of the finest examples is EUR/JPY. The popular cross ended 2012 at 114.24 and is now trading around 124, after peaking at 124.17.This is the 6th consecutive month of gains for EUR/JPY, which is now trading at levels last seen in May 2010. Here are the big lines ahead.
127 provided support for the pair at several occasions during 2009 and is the next significant resistance line. Above the round number of 130, 131 is of importance after providing support for the pair in 2005.
138.50 was the post-financial crisis peak and was several times during 2009. Above this line, there is a big distance until the next line: the pre-crisis 152 spot.
On the downside, 123.30 was the peak of 2011, and was recently broken. It turns into long term support. It is followed by 121, which was support in 2010.
Further below, 114 capped the pair in range trading during 2010. The other side of the range was 105.50. Below the very round 100 line, the 20112 trough of 94.10 is the bottom of the pit.
The cross enjoys a falling yen and a strengthening euro. The new Japanese government entered office in the last days of 2012 and continued pushing through on its election promises – the fall of the yen accelerated.
The euro got a boost from the notion that the worst of the debt crisis is over, and especially from the ECB rate decision, where Draghi revealed that the decision not to cut rates was unanimous, and expressed hopes for “positive contagion” from the financial markets to the real economies.