Wednesday’s price action in the markets was brutal as yesterday’s sell-off in the carry trades was completely retraced this morning following the announcement that a consortium of the world’s leading central banks would join efforts to inject liquidity in short-term lending markets. EUR/JPY ralled over 300 pips from the spike low yesterday to a high around 165.30. Sharp intraday reversals seen today are indicative of continued buying interest in the carry trade. We mentioned yesterday that recent futures positioning data released by the CFTC indicated that speculators are as long as they have been in the Yen for over 2 years. Could Yen bulls be running out of steam? The fact that EUR/JPY was able to close the New York trading session very close to its highs seen for the day while stocks ended the day off sharply has some interesting implications. A daily close above 164.30, the .618 retracement of the double-top high of 167.70 and 158.70 swing low last month opens the door to a couple outcomes in the near-medium terms. The next few sessions could see this pair test the next level of Fibonnaci resistance coming in at 165.70, the .786 retracement of the aforementioned decline. A blast through that level could challenge major daily trend line resistance coming in around 167.00. On the other hand, should equity markets remain heavy, with risk aversion coming back into the market we could see a double top form in this pair and another move lower to test the post-FOMC spike low level of 162.00 yesterday. While all of this volatility creates many opportunities for day-traders, it may not be the best situation for all of those who are not able to sit at their monitors all day. Not a bad time to sit things out and get a jump start on holiday shopping. The best thing about the markets is that they will always be there.

EUR/JPY 500 240

Charts courtesy of FX AccuChart

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