Early in Asia, the Japanese yen remained strong against its major trading partners. Commodity currencies also traded significantly weaker, with the Mexican peso and South African rand falling to record lows. Any further yen strength may still be benefiting from the mixed non-farm payroll report we saw at the end of last week. While the U.S. economy showed a robust headline figure, wages dropped for the first time since 2014. If we see further yen strength against the euro, and it breaks past the 126.50 level, we could see another major move lower.
Price action on the EUR/JPY shows the bearish trend resumed after the key respect of the 50-day SMA (currently trades at 131.58). Currently price is tentatively forming a bullish ABCD pattern. Point D is targeted just ahead of the 161.8% Fibonacci expansion level of the B to C rally. If we do not see a substantial bounce higher here, we could see price target the 2015 low of 126.08. Further downward pressure may target the 122.50 zone.
The trade: Buy EUR/JPY 128.75 with a stop loss at 129.75 and a take profit at 124.75. The Risk/Reward Ratio is 1:4.