Opportunities in EUR/USD and USD/JPY

The European Central Bank’s decision to purchase €60 billion a month in public and private assets has brought a risk-on feel to markets.

Source: Bloomberg

European equity markets have had a strong run, but are currently overbought and I would be using any weakness to accumulate long positions. EUR/USD is a sell on rallies, in my opinion, and I would be targeting $1.1212 (the 61.8% retracement of the rally from 2000 to 2008) in the short-term.

Taking a longer-term view, parity between EUR and the USD is now a realistic prospect and there have been calls from brokers today that EUR/USD could trade to $0.9500 by the end of this year!

USD/JPY is an interesting currency pair at present and I am keen to look at long positions. We have seen USD/JPY break above the top of the daily ichimoku cloud. However, the 50-day moving average at $118.81 and the 61.8% retracement of the 2 January to 16 January sell-off at ¥118.87 is holding up play. We’ve seen good supply here and I’m keen to hold a bias for long positions on a break of this supply.

So, if USD/JPY can break and ideally close above ¥118.87 I would look at long positions, targeting the December highs. Stops could be placed at ¥117.10, just under the 21 January low.

Fundamentally, USD/JPY is attractive from a number of angles, but I feel we will start to see the market pay greater attention to monetary policy divergence between Japan and the US. A general positive stance held by global money managers should also help push USD/JPY higher.

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