Since the beginning of this week, the Yen has stopped its decline against most major currencies after the news that Japanese GDP in the first quarter has grown by annualised 3.9%. The previous figure was 2.4%. On Tuesday, the Yen continued to rise, acting as a safe haven against all other currencies. It has gained 0.2% against the USD and by 0.2% against Euro following the news that Chinese consumer price index has fallen. On Wednesday, during the Asian session the head of the Bank of Japan Haruhiko Kuroda said that the decline in real effective exchange rate of the Yen is unlikely to continue. The Yen has grown by more than 1% against the USD and the Euro. At the moment the pair EUR/JPY is trading at 138.80.
Let us remind that consumer inflation in Japan stands at zero versus the 2% target set by the Bank of Japan. In order to support the economy, the Bank of Japan is implementing aggressive quantitative easing monetary policy and interest rate is maintained at near zero level, being one of the lowest in the world. In the medium-term, the Yen will remain weak and it is expected that at the next meeting on 18-19 of June the Bank of Japan will leave monetary policy unchanged. The Euro in the pair EUR/JPY is supported by the difference in interest rates and an increasing yield of German ten-year bonds.
Support and resistance
On the 4-hour and daily charts OsMA and Stochastic give sell signals; however, due to the weakening of the Yen, this local decline can be considered as a correction. The pair is near its support levels. On the 4-hour chart these are 138.70 (ЕМА50), 136.80 (bottom line of the ascending channel and ЕМА144), and also 138.10 (Fibonacci 50% of the corrective upward movement to the decline since December 2014.) The pair has reached the level of 140.75 (Fibonacci 61.8%), and if the rise resumes, the pair will go back to this level.
Support levels: 138.70, 138.10 and 136.80.
Resistance levels: 139.25, 140.25.
It is recommended to open long positions with the targets of 140.75 and 142.00 from the levels of 138.70, 138.10, 137.00 and 136.80 and in case of indicators signal opening long positions. (on the four-hour chart OsMA histogram shall rise and go above the zero line; Stochastic shall leave the sell zone and fast line of Stochastic shall cross the slow line from below to above). Short positions can be opened after breakthrough at the level of 135.50 (Fibonacci 38.2%) with the targets of 133.45 and 132.25.