Monday Sees Surprising Reversals for the EURUSD & USDJPY

Monday Sees Surprising Reversals for the EURUSD & USDJPY
June 11, 2015

 
Friday’s NFP (Non-Farm Payrolls) number in the United States sparked a move higher for the US dollar across the board. The EURUSD tumbled to almost breaking the 1.10 level, while the USDJPY was flirting with the 126 level (with daily highs around the 125.80 area).

So what happened on Monday?

All US dollar gains after the NFP release were completely retraced as EURUSD went straight up in a steady rise from the 1.11 all the way to 1.13 and USDJPY was sold to 124. What can possibly change over the weekend in order to create such a stunning reversal on a Monday, as typically Mondays are quiet trading days?

If you add the fact that it is already almost middle of June and trading should start being quite slow as it is during the summer, then things just don’t add up.

One answer may be that market is preparing for the June meeting, but the move on Monday were so one sided that this argument barely holds.

Another answer may be that fundamentals changed over the weekend, but in reality it is not that, as there were no meaningful events to mention. Even the G7 meeting in Germany brought nothing new to the trading table.

The correct answer seems to lie in the old fashion law of supply and demand. If there is no demand, prices will fall, whereas if there is no supply, prices will rise. As simple as this concept is, what many traders fail to understand that despite fundamental and economic news, is that in influencing prices, there is nothing more important than supply and demand.

So what is next for EURUSD and USDJPY? Well, we’re looking for a period of high volatility ahead of us. Even Mr. Draghi warned about that at the last ECB press conference, and this means markets are going to move much faster than before.

As liquidity is going to dry during the summer months, Mr. Draghi may have a point in there.

One thing seems to change how correlations are traded lately on the markets. The EURUSD seems to be inversely correlated with the DAX (German stock index), and as long as the DAX continues to fall, (now below the 11,000 mark), the EURUSD seems to be only capable of moving higher.

However, I would say the upside is limited and market will definitely try to take the previous 1.1460 area highs, and this should come pretty soon. Judging by the velocity of the move, we should be in a corrective wave, a zigzag family pattern and this kind of a pattern is even more bullish than a classical impulsive move, as in fact it is formed out of a minimum of two small different impulsive moves.

As for the USDJPY pair, as long as the DAX is falling, it means equities are suffering on a global scale. The USDJPY pair should not find a floor anytime soon.

From a fundamental point of view, there seems to be growing concern in that part of the world regarding the territorial claims on the South China Sea with Vietnam, Japan, China, Phillipines, etc and if this escalates, then the JPY (Japanese Yen) will flex its muscles, regardless of its QE (Quantitative Easing) situation.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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