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Forex: EUR/JPY downside incomplete; room for 123.35/50 and even lower - FXA

Eur/yen looks like its rolling over, says David Solin, partner at FXA, suspecting that the short term downside pattern from Feb 6th high at 127.70 "is not complete." The analyst expects now "declines back to last week's low at 123.35/50 and even below" as a real possibility. Price is currently at 123.75, near session lows.

David notes that "further support is just below in the 122.40/65 area (bull trendline from Dec, base of bearish channel from the high and also within the previously broken Apr 2011 high and 38% from the July 2008 high at 170.00)." A break and close below, "would be a very negative sign and suggest at least another few weeks (and likely longer) of correcting lower."

The analyst adds that "at this point the confidence in such a break of that magnitude is not extremely high (versus forming an important bottom), but clearly want to be/stay short given the potential." He concludes his notes anticipating that if further weakness in EUR/JPY indeed materializes, "such a decline in eur/yen would more likely be driven by/or trigger a tumble in $/yen and yen crosses (yen buying after the last few months of sharp declines)" rather than EUR/USD declines, which in his eyes, are not seen "as the start of a more major, new downleg" he said.

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