For the better part of the last six months, EUR/JPY has been trading in a broad range between 112 and 131.00. Todaya’s break to the topside would be the first time since the credit freeze which followed the collpase of Lehman and AIG swept through the markets in October of last year.
Deleveraging was the theme at that time with leveraged funds, who were big holders of EUR/JPY, forced to dump positions as their access to margin credit was abruptly shut off. Today’s potential close above the 1.31.00/05 level suggests that we may be entering into an era when modest levels of leveraged are to be embraced.
No clearer sign of this can be seen in the actions of the US government in extending 6:1 leverage to participants in its PPIP toxic asset plan. If Uncle Sam is offering leverage, it must be okay, right? Right?
132.25, the October 10 low is providing resistance near-term while the 134.12 level, 38.2% of the 170/112 drop from last-summers highs to this winters lows is another topside target.
1.31.00/05 is important support near-term. Trailing stops will be lined up just below, around the 130.85/90 area.
