• Initially, the euro fell, during the trading session on Tuesday, but as we have seen a couple of times previously, there are plenty of buyers just above the ¥160 level to turn things around against the Japanese yen.
• That being said, this is a pair that could be very noisy over the next several sessions, as we have a lot of different things going on at the same time.

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While the euro is recovering a bit against the US dollar from an extremely oversold condition, the reality is that the Japanese yen is front and center, since the Bank of Japan is likely to cause quite a bit of noise during its interest rate decision on Friday. Because of this, I think you continue to see a lot of volatility here, and, of course, the litany of issues in the European Union is not going anywhere anytime soon either. That being said I think you’ve got a situation where although there does seem to be a significant amount of support underneath, I don’t know if we can take off.

Consolidation

I think we are more likely than not to see a period of consolidation in this pair, mainly because both currencies are so fragile. If we were to break down below the ¥160 level, I anticipate that you would see the euro losing value against almost everything. At that point, I would anticipate a drop, with this pair falling to the ¥157 level. On the other hand, if we were to break just above the 200 Day EMA, then we could see this market go looking to the ¥165 level. Anything above there would be a very bullish turn of events, but I also think that it’s probably the more likely of the two scenarios. This is not necessarily due to euro strength, but it is a definite possibility if the Bank of Japan doesn’t sound that hawkish on Friday. In the meantime, I suspect we go back and forth.

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