- EUR/JPY has been consolidating in Thanksgiving holiday markets within an ascending triangle formed from lows made on the 12th Nov lows and 14th Nov highs with a build-up of higher lows, capped by a familiar support line around 129.10/20.
EUR/JPY broke out of the descending channel to the upside at the start of the month, reaching a high of 130.15 before buckling and reversing down to 128.03 where the price has been bullish constrictive throughout November, but weighed upon by a lack of risk appetite in markets and falling stock prices.
For today, the price has been contained in a narrow sideways range between 128.70 and 129.10, both of which were made in slightly more active time zones overnight, while in the US, Thanksgiving holidays mean North American markets are closed and the price action muted on minimal flows. This was leaving the attention on Europe and the UK.
Attention on Europe and the UK
Share prices there were in the red, down 0.8-1.3% on low volumes despite encouraging progress in the political arena where Brexit uncertainty, the Italian budget saga weighed in investor sentiment.
“The Italian yield curve steepened with 2-year down 11bps following some more encouraging noises from Italy’s politicians. Both Salvini and Di Maio indicated they were prepared to talk to the EU following Wednesday’s criticism that the budget was in serious breach of the fiscal rules. Italy will want to avoid excessive deficit procedures against its budget given the negative market and growth implications. However, the 10-year Italian BTP-German bund spread was little changed at 307bps, indicating the market still remains sceptical,” analysts at ANZ Bank New Zealand Limited explained.
As for data, Eurozone consumer confidence fell to -3.9 vs the prior -2.7, and consensus -3.0. This was the lowest reading since March 2017 and reasserting 2018’s downward trend after October posted a small rise, leaving the euro vulnerable just as markets had started to price out some of the advantages that the dollar has on interest rate differentials and the divergence between the Fed and ECB.
“The real test will be whether this translates into a further (and significant) weakening in consumer spending going forward,” analysts at ANZ explained:
“Indeed, minutes from the ECB’s October meeting suggested policymakers see risks to the outlook as skewed to the downside: “It was important to emphasize that the incoming information, while somewhat weaker than expected, remained overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation”. Guidance around policy normalisation (the winding up of its bond purchasing programme at the end of the year and eventual lifting of interest rates) was broadly unchanged.”
EUR/JPY levels
EUR/JPY has been unable to get over the 2-month resistance line at 129.15, but the ascending triangle is a constructive pattern that is bullish A break out with volume increasing would target R3 initially, but with the base of the triangle at around 150 pips, there would be potential to 130.80.
To the downside, analysts at Commerzbank said the focus is on the current November low at 127.50 below which the four-month support line can be spotted at 127.27: “Further down lies the October trough at 126.64. While above here longer term scope remains on the topside Initial resistance is the November 14 high at 129.23. Above it meanders the 55- and 200-day moving averages at 129.74/95. To reassert upside pressure the market will need to overcome the 130.15 7 th November high.”
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