EURJPY Breakout or Fakeout?

EURJPY Breakout or Fakeout?

EURJPY Breakout or Fakeout?

EUR/JPY registered gains for the sixth consecutive trading day as EUR/USD and USD/JPY powered higher. Today’s move was driven by the combination of stronger Eurozone and U.S. data. From Europe, Germany reported a service PMI revision of 50.9 beating the 50.6 expected. Composite PMI revisions also beat estimates, coming in at 52.8 vs. 52.7 expected. Eurozone retail sales also showed a smaller than expected decline, coming at -0.1% vs. -0.3% expected. Eurozone PMI Services PMI Revision data also beat estimates, reporting 52.2 vs. 52.1 expected. From the U.S., ADP and trade balance missed expectations but the only thing the market cared about was non-manufacturing ISM which hit its highest level in 11 months. The employment component of that report reached its highest since October 2015, paving the way for a solid non-farm payrolls report on Friday. So its no wonder that EUR/JPY is doing well and from a fundamental basis, the break above the 100-day SMA may be real.

On a technical basis the 100-day SMA in EUR/JPY sits at 116.03 and the currency pair ended the day right around this key level. It is too early to tell whether this is a clean break. For that to happen, we would need EUR/JPY to trade above the September high of 116.36. However the chance of today’s move becoming a real breakout is greater than a fakeout because the pair has also broken above the 61.8% Fib retracement of the 2012 to 2014 rally. But while fundamentals signal further gains, fading the rally with a stop just above the September high could be a low risk trade. Targets would need to be nimble since fading the rally would be counter to fundamentals. Another way to look at this is if EUR/JPY retraces back to 115.55/60,it may be worthy buy for another run above 116.

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