EUR/JPY Slipping Lower

EUR/JPY Slipping Lower

EUR/JPY Slipping Lower

We are currently short EUR/JPY because May is generally a terrible month for the euro. Since 2005, the euro has fallen 8 out of the last 10 years during the month of May for an average of -2.97%. We are just beginning to see the decline in the currency. Selling EUR/USD outright is a good idea too but the uptrend remains strong. In contrast there’s no specific seasonality factor impacting USD/JPY. We are bearish USD/JPY because of recent disappointments in U.S. data and our view that even a strong non-farm payrolls report won’t push the Fed to raise rates in June. Any rallies in USD/JPY should continue to be sold. On a broader scale, there are many factors that could make the next few months difficult for investors and EUR/USD in particular. The U.K. referendum in June poses a major risk for all of Europe, the recent strength of the euro could curtail the region’s recovery while the continued impotence of central banks could make investors dubious of the global recovery. There may also be new elections in Europe with Spanish leaders failing to resolve a political stalemate. The migrant crisis fueled nationalism across the continent and is beginning to reshape all of Europe. Many major currencies including euro saw strong gains between early March and late April so a correction in May would not be natural. So between the negative trend for USD/JPY and significantly negative bias for EUR/USD, EUR/JPY should head lower.

Technically, EUR/JPY remains in a strong downtrend and while it may be at the lower end of the chart, there’s a small head and shoulders formation beginning to appear and we believe that EUR/JPY will make another run for 122.00. As long as the pair remains below 124.00, the downtrend remains intact and the door is open to additional weakness.

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