EUR/JPY: Equities, Italy hold the key as sellers eye for a break to the downside

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EUR/JPY has been attempting to break below the 200-day MA this week


The 200-day MA (blue line) has been helping to limit any downside move in EUR/JPY this week and today that level sits at 130.96. As long as that level holds, the upside momentum in the pair remains intact but sellers have been looking very poised to try and break below it and things are setting up for a very key moment as the US jobs report will come into focus.
Italy’s budget worries have returned back to the picture and that is what is weighing on the pair today but the real driver of direction will be equities. And we will only get clues on that after the US jobs report hits.

Sellers have continued to defend the near-term bearish bias in the pair as they have held tests by buyers in trying to move above the 100-hour MA (red line) since Monday. That kind of poise shows that all it takes is one key catalyst and things will start breaking down in the pair once they can clear the 200-day MA and the trendline support since August.
As mentioned above, the key will be to look out for how equities perform later. The US jobs report will be the one in focus and if the data comes in with solid readings, expect that to underpin the dollar and Treasury yields as markets will price in further Fed rate hikes to come.
And with higher yields, it’s important to note how poorly the equities market reacted yesterday. S&P 500 fell by 0.8% as tech stocks led losses. And the key to trading yen pairs later today will be again to watch for the impact of higher yields on equities; vice versa.
The market is now positioning itself for a better jobs report to come but that is mainly surrounding dollar trades. For EUR/JPY, it’s going to be all about equities sentiment. Keep that in mind ahead of the payrolls data later. But don’t forget about the outside risk of Italian headlines that may pop up too that could potentially mess with things.



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