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Underscoring investors' on-going insatiable appetite for risk, the benchmark stock indices in Germany and the UK hit new record highs today. The commodity-heavy FTSE 100 rose on the back of a sharp rally in the price of oil while the DAX was boosted by news German Chancellor Angela Merkel won in a local regional election. As a result of the oil and stock market rally, commodity currencies outperformed while perceived safe haven yen and dollar both fell. The euro continued its recent ascend thanks to the market-friendly outcome of the German regional election, and previously the French general election. When the single currency rises in a "risk on" market environment, the EUR/JPY is usually the euro pair that tends to outperform as the safe haven yen takes a back seat.
Indeed, the EUR/JPY has confirmed its recent breakout above the key 124.00 handle by forming a new high today after a period of bullish consolidation, which is usually characterised by a modest – often choppy – retracement after a sharp rally. After a lengthy period of range contraction, the market digested all the available news and decided to push further higher. Thus, the point of origin of this latest phase of the rally needs to be monitored closely in the event the buyers show unwillingness to bid the pair meaningfully higher. Specifically, a potential break below today' low around 123.60 would invalidate this bullish breakout. However, for now the path of least resistance is to the upside until such a time we see a reversal pattern unfold at higher levels or 123.60 breaks down first.
Indeed, the EUR/JPY has confirmed its recent breakout above the key 124.00 handle by forming a new high today after a period of bullish consolidation, which is usually characterised by a modest – often choppy – retracement after a sharp rally. After a lengthy period of range contraction, the market digested all the available news and decided to push further higher. Thus, the point of origin of this latest phase of the rally needs to be monitored closely in the event the buyers show unwillingness to bid the pair meaningfully higher. Specifically, a potential break below today' low around 123.60 would invalidate this bullish breakout. However, for now the path of least resistance is to the upside until such a time we see a reversal pattern unfold at higher levels or 123.60 breaks down first.
