It continues to be history in the making.  The Japanese yen has continued to rise despite warnings from Japan’s central bank and its Ministry of Finance as traders and global investors search for safe haven assets.  This is particularly true now for the EURJPY currency pair as rumors that European leaders may be considering an orderly default of the Greek economy are spreading.  This will likely continue to weigh on the pair, lending to further declines in the short term.

Although economic data hasn’t been that uplifting for the Japanese economy, they’ve been worse for Europe.  Once shielded by the global recession on the support of large economies like France and Germany, the Eurozone has taken a step backwards.  According to recent survey findings by manufacturing sector activity in the Eurozone shrunk for the second straight month – printing a 48.5 contractionary reading.  This is particularly negative when compared to more positive activity last year in the region, which was supported by surging German export orders.

This decline in sector activity is also taking its toll on the consumer sector – which has pulled back spending in recent months.  German retail sales plunged by 2.9% last month, as French consumer numbers also remained flat.  These negative indications have supported cuts in growth forecasts for the region by major entities like the International Monetary Fund.  Economic expansion is expected to be around the 1.5% area, instead of 2-2.5% estimated earlier in the year.

As with any other asset – including the euro – without growth, demand will continue to remain thin.

And then there’s the Greek saga.

The Greek financial situation has been a topic of debate for the better part of two years.  But, speculation has now heightened of a potential Greek default – in tandem with a potentially larger European Financial Stability Facility.  Greek officials deny the rumors.  But, it’s difficult to side against the market that is pricing a relatively high probability of default.  International bonds spreads, high Greek short term yields and a the Greek government’s difficulties of implementing proper and strict austerity measures are all indicating a roughly 98% of default.

EURJPY Plunges By About 17% – Source:  FXAlliance Charts

The likelihood of default will continue to weigh on the EURJPY currency pair as investors look for ways out of Euro currency assets – exiting out of a carry trade favorite for the last 10 years.  The pair has fallen by about 17% since hitting a 122.50 high this year.

As a result, traders will continue to eye 101.50 support level in the short term – with the currency pair likely to enter into temporary consolidation around the session low.  If the currency breaks this support barrier, secondary stops at 101.25 will likely be eyed with medium targets below at the psychological 101.00 support.