EUR/JPY: market shorter EUR/JPY but dips should now hold at circa 128.40-127.95

• Markets are getting shorter of EUR/JPY as fundamentals drive the price.
• Analysts at Commerzbank argue that Elliott wave counts suggest that dips should now hold at circa 128.40-127.95.

EUR/JPY was trading flat in the NY session after recovering off its lows in a broad based sell-off in the yen - (USD/JPY up from 110.84 to 111.19 the high/AUD/JPY up from 79.51 to 80.27).  EUR/JPY is currently trading at 129.07 from a low of 128.57 and made a recovery high of 129.15. 

EUR/JPY has climbed from 128.57 to 129.15 the high so far while EUR/USD has also picked up a bid from the sell-off lows last week down at 1.1588 to 1.1628 - (There was some noise that the Turkish central bank, (CBRT), vows to "adjust" monetary policy next week - but that is likely offering better levels to sell upon given that the CBRT is unlikely to raise rates enough to give the Lira any sustainable support, nor change the market's perspective of how much risk the nation's currency crisis poses in the medium term).

Today is not the best day to assess the markets given the thinner liquidity dude to the NY traders being out for Labour day. However, the flows have been more positive in terms of risk although this is unlikely to be sustained and is probably more down to profit taking - more will be told when US markets resume tonight and key levels will come back into play. 

Cross positioning, markets getting shorter EUR

For EUR/USD, the 21-D SMA is a target below the prior day's lows at 1.1584 which is going to be key for the cross, more so than USD/JPY whereby the dollar is also picking up a safe haven bid and with the latest CFTC positioning data showing that EUR short positions have increased further, mostly down to the guidance from the ECB that rates may not be raised until at least summer 2019 and the concerns about Italy’s budget have also been growing.

As for the yen, shorts have been scaling back for five consecutive weeks due to continued pressure on EM markets. For the dollar, heightened capital outflows from emerging markets and an indication from the FOMC that rates could be increased by a total of 4 times this year as been giving it the edge. However, looking through the EM and European crisis risks, the sentiment that the Fed will be scaling back its optimism for markets in 2019 and reducing their plots for the same period could start to become a factor that may see more flows into the CHF (which can be a correlation of upwards of negative 95%) and yen - EUR/JPY supportive - and something to watch for going forward. 

EUR/JPY levels

Analysts at Commerzbank explained that EUR/JPY, last week, baulked just ahead of the 200 day ma, 55 week ma and the July high at 131.29/98:

"Elliott wave counts suggest that dips should now hold at circa 128.40-127.95. A move above the July high at 131.98 would re-target the 133.48 April peak. Below 127.95 would leave the market back on the defensive and suggest losses back to the 124.91 mid August low.. Where are we wrong? Only if support at 124.91/62 were to give way, would the area between the December 2016 high and the June 2017 low at 124.09/122.40 be back on the plate."