EURJPY: Positioning Hints at Forthcoming Selling Opportunity

[B]My picks:[/B] Short EURJPY (pending)
[B]Expertise: [/B]Global Macro, Classic Technical Analysis
[B]Average Time Frame of Trades:[/B] 1 week - 6 months

EURJPY positioning revelas a well-defined Rising Wedge bearish reversal chart pattern, with the downward bias bolstered by negative divergence on the RSI oscillator. Near-term support is found at the intersection of the wedge bottom and the 23.6% Fibonacci retracement of the 01/21 - 06/05 rally at 132.76. A daily close below this level will present a selling opportunity, initially exposing the 38.2% Fib at 128.80. The fundamental picture looks supportive of EURJPY weakness, with the MSCI World Stock Index trading at the highest levels since 2004 relative to earnings, hinting at substantial overvaluation given real global GDP grew 4.1% that year and is forecast to shrink in 2009. A break lower in risky assets is likely to drag the carry-linked cross lower; indeed, the MSCI metric and EURJPY are now 88% correlated.