The second half of the European session brings us slightly higher volatility because Nancy Pelosi is on her way to Taiwan. China considers this a hostile move and has significantly increased its military presence in the region. This should typically trigger a risk-off mode, but the market's reaction is somehow divided.
For example, gold is climbing higher, representing old-school risk-off mode and a flee towards safe-havens.
On the other hand, indices also look bullish, with DAX pushing towards daily highs. For indices traders, we’re guessing the play will be as follows: If nothing happens, it’s better to hold long as the surge is highly probable. And if something is about to happen, who needs a stock exchange during World War III?
In this analysis, we’ll focus on EUR/JPY. This pair is in a fascinating place and, by having yen in it, can participate in a relief rally if China and the US play it cool.
EUR/JPY is currently at a crucial support at 133.8 (green). This was a strong support in May and resistance in February, October, and May 2021. This area is also 50% Fibonacci on the most recent uptrend. It looks like a great place to stop or at least pause the correction.
Worth noticing is that the recent strength of the yen seems overwhelming. The price dropped for four days straight and a few weeks before that. After that steep decline, it’s normal to have at least a minor correction, and the place for that is currently perfect. Any bullish price action here, for example, a long tail or double bottom, will be an invitation to buy, and that’s our base scenario here.
