Hello Traders,
Catalonia referendum turned violent after police attacked peaceful campaigners. They also went ahead and seized ballot boxes, fired rubber bullets and pounded voters. According to news outlet, some protestors sustained serious injuries. Brutal as it was, it was also uncalled for and encouraged voters to vote for an independent Catalonia state. In fact from the 43% voter turnout, 90% voted for independence.
Going by Spanish referendum laws, Catalonia president Carles Puigdemont promised to move ahead and inform the regional parliament of voter results and declare its new found independence within 48 hours. Whether that will be legal or not, the EU has not commented but Spanish PM termed it a serious threat to peaceful co-existence. Of course, with these kind of news, a broad based Euro depreciation was inevitable.
As the Euro takes it to the chin, the Yen bulls had something to smile about. Tankan manufacturing index jumped the highest in 10 years when its index jumped 5 points from 17 to 22. The weak Yen is supporting exports and that is why large CAP manufacturing firms are expressing their optimism going forward. China on the other side reduced its reserve requirements for the first time since Feb 2016 and this is widely interpreted as accommodative though the central bank says otherwise. According to them, they still are neutral and look to spur lending to small sized enterprises who are starved of the much needed liquidity.
Technically, I look to sell the Euro and buy the Yen going forward. In the weekly chart, there is a bear divergence and bull momentum is waning. Since today’s Tankan Manufacturing index was positive, I really think that it will be supportive for Abe as we approach a snap election called on 22.10.2017. If sell momentum continues, the support trend line is likely to be broken and ideal take profit zone will be around 125-127.
I conclude my sell recommendation from the weekly chart and will trade as follows. My stop loss will be above last week’s highs of 134 and my take profit will be around 125-127 support zone.
This will pan out as follows:
Sell: 132.50
Stop Loss: above 134
Take Profit: 125-127
Have a good trading day.

eurjpy weekly chart-02.10.2017

Source: Dalmas

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