We still see unwinding of carry trades in the markets as the yen has found its way to incline against majors. The global recession continues to deepen and threaten economies across the world as investor risk appetite has diminished significantly spurring investments in the Japanese yen as the lowest yielding currency and in the yellow metal after global stock indices plummeted triggering more fears.
After breaching the 61.8% correction for the ascending channel yesterday at 90, the USD/JPY pair continued to decline targeting the next correction at 88.90 before resulting in a significant rebound to the upside as the pair has been trading within an oversold area on momentum indicators on the four hour charts. We still see the chance for the pair to retest the 90 level yet the upside direction seems to still be weak as volume and the trend of trading according to the MACD indicator is still bearish. Therefore, since we see contradicting signals on technical indicators, trading today could be of high volatility.
As for the pound versus yen cross, the pair completed the correction today for the short term ascending channel that has been within a consolidation area since the beginning of December. However, as the pair fell, it failed to gather enough bearish momentum to breach the 100% correction at 129.86 to cause a similar rebound to levels above the 130 mark. William's percent range suggests that an upside correction should be expected anytime soon but as these movements are weakening, the correction will probably be halted by minor resistances before reaching the 76.4% resistance at 132.59.
Concerning the EUR/JPY pair, we see the pair had breached the 76.4% correction at 119.17 to maintain trading levels below this correction to open the way for the next medium term target at 116.30 which is the key support for the consolidation area the pair has been trading within. However, before reaching this level, the pair will face several minor supports that in order for them to be breached, must first correct to the upside to the 119.17 level at the very least to shake off the excess selling orders and reverse back to the downside with enough bearish momentum to reach our above mentioned proposed target. Yet during today's session, we could witness high volatility in the markets as direction indicators still support the downside movements while momentum indicators are suggesting an upside correction but since we have yet to see any reversal signals, we expect the pair to continue to decline.
Moving on to the majors, the selling pressure on the Euro cross, resulted in a decline in the EUR/USD pair as it is currently testing the 1.3220 support level where if successfully breached to the downside, will open the way to our next target at 1.3070. The target is achievable despite some momentum indicators showing the pair being oversold but reaching this level, will be difficult for the pair even if direction indicators such as the ADX indicator still signals more potential to the downside.
Finally, the Royal Sterling continued to slide versus the dollar where it is currently targeting the key support for the consolidation at 1.4470. The target isn't far and we see no signs of divergence or reversals that suggest a possible upside correction and therefore we expect the pair to reach this target in the near future. Direction and momentum indicators are both supporting the downside direction but to confirm this, we will need to see a daily close below the 76.4% correction for the short term ascending channel at 1.4584.