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Chart of the Day: EURJPY

While there is much event risk to focus on globally, the market is also looking closely at this Thursday’s Bank of Japan (BoJ) meeting (no set time), and whether the BOJ cut the deposit rate for the first time since early 2016.

EURJPY daily chart
"EURJPY daily chart"

While there is much event risk to focus on globally, the market is also looking closely at this Thursday’s Bank of Japan (BoJ) meeting (no set time), and whether the BOJ cut the deposit rate for the first time since early 2016. The swaps market has discounted a 76% chance of a cut, although, I feel this is too high and see upside risks this week in the JPY. That said, the BOJ will be cognisant not to cause too great a reaction in the JPY and will offer an outlook that keeps JPY bulls from pushing the JPY too much higher.

Of course, there is more to trading the JPY than simply the central bank meeting, and broad market semantics and implied volatility are equally important. It certainly doesn’t feel as though we will see a sharp pick up in implied vol, that is unless we’re genuinely disappointed in the Fed’s outlook or we see a negative turn in the US-China trade talks. So, the EURJPY short positions may face headwinds if market sentiment continues to improve.

Technically, EURJPY looks interesting, with price working in a channel, and with a series of lower highs, should we see 120.37 give way, then it could see price head towards horizontal support at 120.03, where we’ll be looking for buyers to support. A break of 120 and it’s onto the 20-day EMA.

I have focused on downside levels, but on the other side of the trade, I'll turn outright bullish on this pair on a close through 121.35.

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