Euro/JPY - One of My Favorite Recession Trades

By Kathy Lien | November 20, 2008 | 1:09 PM | 0 Comments

I have long said that EUR/JPY is one of my favorite recession trades. With the Eurozone in a recession and the need for the European Central Bank to step up to the plate and lower interest rates, the rate differential between the Euro and Japanese Yen will close and close rapidly. Furthermore, as US equities continue to tumble, EUR/JPY will follow suit.

But what I really like about this currency pair is that it is breaking out of a recent consolidation to the downside. As indicated by the chart below, the currency pair has entered the "Sell Zone" which I determine using Bollinger Bands. That level coincides with triangle support and the 23.6% Fibonacci retracement. As long as the currency pair does not rebound and take out today's high of 120.47, I think it's headed to 115 and maybe even lower.

Source: eSignal