EUR/JPY – Headed Back to 127?

EUR/JPY – Headed Back to 127?

EUR/JPY – Headed Back to 127?

Between the ECB’s views on the currency, the terrorist attack in Spain and arrests in Finland, the euro should be trading below 1.17. The tragedy in Barcelona is a harsh reminder of the ongoing geopolitical risks facing the region. From an economic perspective, these attacks increase allocations to anti-terrorism efforts, discourage tourism and deter consumers from frequenting restaurants and other establishments. ECB President Mario Draghi will be speaking at Jackson Hole next week and there are reports that he may not talk taper. The central bank is also worried about the high level of the currency so if they may be reluctant to say anything that could reinvigorate the rally. As for the U.S. dollar, we’ve seen how positive data and hawkish Fed speak can be overshadowed by a deteriorating political environment. For many people, this past week’s stronger than expected retail sales report has become a distant memory. The U.S. and South Korea are scheduled to hold military games on Monday, if they move forward (and we think they will), reigniting North Korea’s fire, USD/JPY will extend its losses towards 108.00 before rebounding ahead of Jackson Hole.

For all of these reasons we believe EUR/JPY is headed back to 127. On a technical basis, EURJPY has crossed above the 50-day SMA but if it gets anywhere close to 129, we think it’s an attractive sell with a stop above the 20-day SMA near 129.80.

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