CURRENCY ANALYSIS (History Lesson)
Majors report EUR/JPY
In the trend of Euro/Yen, since the introduction of Euro in January 1999, we can notice, as a whole, 4 different macro-phases:
Phase I (Jan 1999 – Oct 2000): falling down.
After being exchanged in the 132.50-135.50 area, just after the start of transactions in January 1999, the cross EurYen fell to a historical low at 88.97 on October 26th, 2000.
Phase II (Nov 2000 – Jul 2008): strong euro rally.
Since November 2000, there is the developing of a long phase dominated by a strong Euro, with the yen systematically sold and used as a funding currency, in order to finance investments in asset classes denominated in other currencies. This carry-trade activity brought to a “currency bubble”, which kept inflating till the burst of the real estate-financial bubble in Summer 2007. The cross reached a historical high at 169.95 in July 2008 (+91% vs. the year 2000-bottom).
Phase III (Aug 2008 – July 2012): euro’s collapse
With the burst of the real estate-financial bubble, since Summer 2007 and with an acceleration after Lehman Brothers’ bankruptcy in September 2008, a progressive strong disinvestment out of the major world Bourses brought to heavy buying of Japanese yens in order to square-up the enormous carry trade positions accumulated in the years before. That brought to a collapse of the cross euro/yen, fuelled by a double drive: the fall of the euro vs. the US dollar together with the fall of the US dollar vs the Yen. The cross collapsed to a low at 94.12 on July 24th (-44.6% from the historical high).
http://www.fxtradermagazine.com/images/UsdJpy.PNG
Phase IV (July 2012- today): strong euro’s recovery, and consolidation.
Since the end of July 2012, a really strong rally was favored by the first cheering-up signals in the euro-zone – that contributed to a renewed risk-on attitude in the financial markets – together with the aggressive monetary easing that has been implemented by the Abe administration since the end of 2012. The cross reaches a peak at 145.70 on December 27th 2013 (+55% since the July 2012 lows), overcoming by far the previous peaks of September 2009 at 139.25.
Since the beginning of 2014 there has been a downward movement – along with the corrections in Nikkei225 -, with a fall to a low at 136.23 on February 4th. The cross has then recovered towards 143.00/80 in March-April, to decline again towards 137.70-138 area in the last weeks. In order to validate the recovery signals post-July 2012 an eventual correction movement must remain above the key support area 128.25-129 (intermediate support 135-136). The current trend is weak/sideways, with the cross moving between 136.20 and 143.00/80. A first positive signal would be triggered by a break above 143.00/80 (premature) but the prevailing uptrend would resume only above 145.65-146.00 (not vey likely).
As long as the cross stays below 140 the present correction could continue towards the February’s lows around 136.20. A break below that support would provide a weakness signals also for the coming weeks, targeting firstly 134.00/50 and afterwards the strong support in area 130-131, with possible extensions (not very likely right now) towards the key support area 128.25-129.
Majors report EUR/JPY
In the trend of Euro/Yen, since the introduction of Euro in January 1999, we can notice, as a whole, 4 different macro-phases:
Phase I (Jan 1999 – Oct 2000): falling down.
After being exchanged in the 132.50-135.50 area, just after the start of transactions in January 1999, the cross EurYen fell to a historical low at 88.97 on October 26th, 2000.
Phase II (Nov 2000 – Jul 2008): strong euro rally.
Since November 2000, there is the developing of a long phase dominated by a strong Euro, with the yen systematically sold and used as a funding currency, in order to finance investments in asset classes denominated in other currencies. This carry-trade activity brought to a “currency bubble”, which kept inflating till the burst of the real estate-financial bubble in Summer 2007. The cross reached a historical high at 169.95 in July 2008 (+91% vs. the year 2000-bottom).
Phase III (Aug 2008 – July 2012): euro’s collapse
With the burst of the real estate-financial bubble, since Summer 2007 and with an acceleration after Lehman Brothers’ bankruptcy in September 2008, a progressive strong disinvestment out of the major world Bourses brought to heavy buying of Japanese yens in order to square-up the enormous carry trade positions accumulated in the years before. That brought to a collapse of the cross euro/yen, fuelled by a double drive: the fall of the euro vs. the US dollar together with the fall of the US dollar vs the Yen. The cross collapsed to a low at 94.12 on July 24th (-44.6% from the historical high).
http://www.fxtradermagazine.com/images/UsdJpy.PNG
Phase IV (July 2012- today): strong euro’s recovery, and consolidation.
Since the end of July 2012, a really strong rally was favored by the first cheering-up signals in the euro-zone – that contributed to a renewed risk-on attitude in the financial markets – together with the aggressive monetary easing that has been implemented by the Abe administration since the end of 2012. The cross reaches a peak at 145.70 on December 27th 2013 (+55% since the July 2012 lows), overcoming by far the previous peaks of September 2009 at 139.25.
Since the beginning of 2014 there has been a downward movement – along with the corrections in Nikkei225 -, with a fall to a low at 136.23 on February 4th. The cross has then recovered towards 143.00/80 in March-April, to decline again towards 137.70-138 area in the last weeks. In order to validate the recovery signals post-July 2012 an eventual correction movement must remain above the key support area 128.25-129 (intermediate support 135-136). The current trend is weak/sideways, with the cross moving between 136.20 and 143.00/80. A first positive signal would be triggered by a break above 143.00/80 (premature) but the prevailing uptrend would resume only above 145.65-146.00 (not vey likely).
As long as the cross stays below 140 the present correction could continue towards the February’s lows around 136.20. A break below that support would provide a weakness signals also for the coming weeks, targeting firstly 134.00/50 and afterwards the strong support in area 130-131, with possible extensions (not very likely right now) towards the key support area 128.25-129.
Gregory D. Alexandr