Friday 14 December 2012

EUR/JPY – Trade Overview


Strategy: Trend trading (in addition to RSI and MA)

We will be giving an analysis on the FX pair. Spread betters and have been speculating this pair since the EU slashed interest rates.

Macro-economic view

The reason why the pair was in a downtrend during April and July 2012 is largely due to the ECB cutting interest rates.  This meant capital flight.

A reversal then followed at 0.94 as we can see from the chart below, we see that there were several kinks in the chart which is due to the optimism of the Greece deal, which has gone through now. Recently Greece bought back 31.9 billion of their debt showing dedication to the programme set out by the IMF and ECB.  

After a revised reading on Japan’s GDP, they are back into recession. Unfortunately for the Japanese they seem to be having a lot of misfortunes since they have been in recession for 20 years previously. In addition, deflation has been a persistent problem for the Japanese economy. This played positively on the pair.

Japan will be holding an election on 16/12/2012 and this will decide what polices are likely to be run. The policies that may be implemented are likely to be axe in government spending and increase in taxes. Spread betters will be looking for an opportunity to go short here on the pair in the long term.

Technicals

The pair is currently trading between S1 and R1. Our S1 is a strong support since it was last tested late last month. However previously it was a resistance which it broke through and now has become our support. Our R1 was last tested February and March 2012. In March it did break this resistance level but lost momentum and R2 became the new resistance. In addition, we can see from the chart that R1 is being tested as we speak. If R1 is broken then we could see a move like we saw in between January and March of this year and we could see the top between R1 and R2.

However from the RSI we can see that there is a bearish divergence (signified by the blue lines) which may signify that the pair may be reaching its top and may signify that there may be a reversal. This is very likely to happen as the RSI has been in the overbought territory 5 times already. However the moving averages seem to contradict this view and are giving us a bullish outlook as we can see the 50-day MA (white) has crossed over the 200-day MA (yellow). In addition the bearish divergence may fail if the trend is strong, and in this case it seems like it is.
Support 2 (S2)
Support 1 (S1)
Current Price
Resistance 1 (R1)
Resistance 2 (S2)
100.306
105.679
109.760
109.927
111.409






In the short term I am bearish as I think the pair will repeat a similar move it made in the beginning of the year. In addition, the RSI has consistently been in the oversold region and the bearish divergence supports this view. If you are spread betting then I would go short on the pair.

In the long-term I am bullish on the pair, I think the Euro Zone will be sort out its problems, Greece seem to be dedicated to the programme given by the ECB and IMF.

Spread betters will have good opportunities to go short and long, due to the factors stated above. If you haven’t jumped on the bandwagon then you can start trading online using platforms. This will enable you to spread bet, place trades and back test on the designated platform. Before you start trading online remember that you need to do you research before you place a trade as you may end up making losses.

I hope you found this post informative and I hope this at least provides a foundation for trading CFD's. The blue words in the text, when clicked provide more information on the word. This post is intended to educate the reader.

Please note this is my opinion and he/she (the reader of this post) should not place a trade with the information provided in this post as this may result in a loss for the individual. I will not be held responsible for the loss you make. The data presented may be inaccurate/incomplete and will be inaccurate due to the nature of financial markets

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