Japanese stock market turmoil helps the Yen, for how long?
One of the most volatile pairs in the past 24 hrs. is the EUR/JPY. And as are many binary traders we also are keen to predict which direction the market is going to take. Overnight news out of China did weigh heavily on the pair. The major indicator of economic growth, the HSBC flash manufacturing PMI dropped to a 7-month low on subdued demand.
HSBC Purchasing Managers' Index for May was marked at 49.6
Activity in the Chinese factories has contracted for the first time in half a year as new orders fell and dashed hopes for a protracted recovery in the world’s second largest economy. The preliminary HSBC Purchasing Managers' Index for May was marked at 49.6, where any number below 50 signifies a contraction in economic activity.
April’s final readings were just above – at 50.4. New orders slipped to 49.5, which was the lowest level since September – whilst many analysts were hoping that internal demand might compensate for a drop in export orders, that didn’t materialize.
As a result stocks tanked lower after the release, and the JPY rallied as a dramatic drop in the Nikkei of more than 7% has triggered some JPY buybacks of short positions. Into the European morning the pair traded as low as 129.97. Following that there was a strong rebound with the pair currently shaking hands at 131.90.
Meanwhile in fresh news out of Europe the PMI’s reported from the region did beat the consensus expectations triggering a decent rebound in the EUR across the board. The preliminary Eurozone Services PMI picked up in May to 47.5, which marked a three-month high.
Expectations now are for the rate of economic contraction across the Euro Zone to be similar to the first quarter around -0.3%. The preliminary report for the manufacturing sector rose to 47.8 this month, which was way better than the 46.7 in April and the 47.0 consensus expectations.
Looking at the chart we observe an interesting price setup with levels around 131.95-132 having been tested a couple of times during the New York session so far. Our baseline scenario is that if we see a sustained hourly close above 132.20 this should be enough to trigger further stops and unleash a move back towards the highs of the recent range around 134.
However if the test fails to materialize a sustained break we could see the rate dipping towards the support level at 129.95-130.