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EUR/JPY pushes lower as recession fears set in

July 6, 2022 12:22 PM

The headlines regarding worries of a recession have been coming in fast and furious. The worse than expected PMI headlines 2 weeks ago out of Europe and the US were finalized this week.  The European S&P Global Manufacturing PMI Final for June was 52.1 vs 54.6 in May.  This was the lowest level since August 2020.  The ISM Manufacturing PMI for June was 53 vs 56.1 in May.  This was the lowest level since June 2020.  Although the US manufacturing data was just as bad as in Europe, traders have been flocking to the US Dollar as a safe haven currency.  As a result, EUR/USD has fallen below 102 and appears that it could be on its way to parity.

However, the US Dollar isn’t the only currency that traders are moving to for safety.  The Yen is also considered a safe haven.  As a result of a weak Euro and a strong Yen, EUR/JPY has been taking a hit over the last few days. Since February 2020, EUR/JPY  had been moving higher in an upward sloping channel.  The pair made its 2022 low on March 7th at 123.39 and moved higher until June 28th, creating a triple top near 144.27. This is EUR/JPY’s highest level since January 2015.  On June 28th, the EUR/JPY began moving lower, and just 1 week later on July 5th, the pair broken below the bottom trendline of the longer-term, upward sloping channel near 139.50.   Today, EUR/JPY continues lower and has broken the neckline of the triple top near 137.70.  The target for the break of the neckline of a triple top is the height from the top to the neckline, added to the breakdown level.  In this case the target is near 131.10.

Source: Tradingview, Stone X

On a 240-minute timeframe, there is a confluence of support just below previous resistance and the 38.2% Fibonacci retracement level from the lows of March 7th to the highs from June 28th between 136.68 and 136.80.  Below there, EUR/JPY could fall to the 50 % retracement level from the same timeframe near 134.33, then the lows of May 12th at 132.65. However, if EUR/JPY bounces, first resistance is at today’s high and the bottom trendline of the channel near 139.50. Above there, the pair can trade to the July 5th highs at 142.37, then the highs from June 28th at 144.28.

Source: Tradingview, Stone X

If general fears of a recession continue, it may put more pressure on the Euro.  In addition to EUR/USD moving lower, EUR/JPY could continue lower as well, as the Yen is also considered a safe haven currency.

 

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