Euro/dollar (EUR/USD) weakness may resume and dollar/yen (USD/JPY) may continue to consolidate and eventually sell off if the forex markets are disappointed with the action from the Bank of Japan (BOJ).
RISKS ARE GROWING
Despite finally making a deal for Cyprus, the euro is weak. Concerns are that the near-term risks are growing. Italy will likely go back to the polls. Yesterday’s comment from Eurogroup President Jeroen Dijsselbloem that the Cyprus bailout will serve as an example of future restructuring, prompted fears of a bank run to eventually occur with the other struggling periphery countries (Spain, Italy, Greece, Portugal, and more).
FISCAL YEAR ACTION
A catalyst for some yen strength or euro/yen (EUR/JPY) bearishness may also come from year-end repatriation from Japanese companies. The fiscal year end requires Japanese firms to clean up their balance sheets. The key weakness however may come if Bank of Japan Governor Kuroda disappoints with the announcement of a new QE program. If he only unveils an additional 10 trillion yen of stimulus, may bring the yen crosses down.
The EUR/JPY daily chart highlights the 117-127 range that it has been trading in for 2013. Price action has started to make some lower highs and is quickly approaching the very critical 120.00 support level. If we see downward pressure break below this key trading zone, we may look for a test of the 117.50 level. Should that level give way, a further decline towards 115.00 may provide strong support. It is at this area we may see the formation of a bullish Gartley pattern.
From Trader Planet