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Day one: our EUR/JPY trade

Potential trade idea – look to buy EUR/JPY mini on dips into 137, with stops placed a touch below 135.5 and a potential target of 139.

The two currencies continue to experience diverging fundamentals which has resulted in the pair rallying to the highest level since October 2009. The pair has continued its upbeat tone in Asia with risk well underpinned to start off the week, trading at around 137.30. There will be plenty to look out for on the European front this week with a lot of emphasis on Germany’s economy.  Out of Germany we will get jobs numbers, inflation and consumer spending readings. There will also be a Senate vote in Italy which could see former PM Berlusconi unseated. Positive releases from Germany would provide a platform for the single currency to extend its gains.

Key inflation reading out of Japan

From Japan, we have monetary policy meeting minutes due out tomorrow which are expected to show officials unanimously agreed to continue with the easing/stimulus program. At the end of the week, we have retail sales, manufacturing PMI, household spending, CPI, unemployment rate, industrial production and housing starts data due out. CPI is always a talking point given one of the BoJ’s key mandates is its 2% inflation target at the moment. Of course we will also look out for weekly fund flows data on Thursday for an indication of outflows/inflows.

Bullish price action

From a price action perspective, EUR/JPY has rallied significantly since bottoming out in July last year. This leaves it in a firm uptrend and primed to extend its gains in the short term. Buying dips into 137 is a preferred strategy from here, whilst eyeing moves to 2009 highs in the 139 region. Stops could be placed below 13.5 which is where October highs were. We will keep traders up to date with EUR/JPY’s progress through the week.

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