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EUR/JPY Fundamental Forecast – February 12, 2016

By:
Barry Norman
Published: Feb 11, 2016, 05:44 UTC

Analysis and Recommendations: The EUR/JPY dipped 78 points to trade at 127.22 as safety is the word of the day on the second day of Janet Yellen’s

EUR/JPY Fundamental Forecast – February 12, 2016

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Analysis and Recommendations:

The EUR/JPY dipped 78 points to trade at 127.22 as safety is the word of the day on the second day of Janet Yellen’s testimony. Sticking largely to the script, Yellen made clear on Wednesday that the central bank remained on a path of ‘gradual’ policy tightening. Yet, she also highlighted growing risks facing the economy.

Fed Chair Janet Yellen told U.S. lawmakers on Wednesday that the Fed is unlikely to reverse its plan to raise interest rates further this year. She added, however, that tighter credit markets, volatile financial markets, and uncertainty over Chinese economic growth have raised risks to the U.S. economy.

“While the Fed is in a waiting mode to see how those risks play out, we don’t see Fed hikes being priced in again any time soon,” analysts at BNP Paribas wrote in a note to clients.

The European Central Bank gave no indication of a target price for the Euro, generally part of the goal of quantitative easing is to weaken the currency to assist with the goal of increasing inflation. This has been a big struggle for Europe, as the chart below shows. There has been little to shout about, and inflation is still in the doldrums. So much so that there has been speculation from UBS that the European Central Bank may be forced to cut its inflation target of 2 percent. UBS has predicted that 1 percent will become the new target, and if we are being honest here, at present we feel even that is out of reach.

The euro underperformed. Although it has enjoyed a good correlation with safe-haven assets and currencies since last August, it dropped to its lowest in nearly two weeks against the yen and the Swiss franc, another safe haven.

Europe’s banking index fell 1 percent and yields on southern European government bonds rose, pushing the euro lower against the dollar to $1.1185. The euro was also hurt in part by weak German industrial output, which fell unexpectedly in December

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Today’s economic releases:

Cur.   Event Actual Forecast Previous  
    Japan – National Founding Day
    China – Lunar New Year
  NZD Business NZ PMI (Jan) 57.9   56.7  
  GBP RICS House Price Balance (Jan) 49% 52% 49%
  EUR Eurogroup Meetings        
  USD Initial Jobless Claims   281K 285K  
  CAD New Housing Price Index (MoM) (Dec)   0.2% 0.2%  
  USD Fed Chair Yellen Testifies  

 

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Upcoming Economic Events that you should be monitoring:

Friday, February 12, 2016

Holiday           China – Lunar New Year

Cur. Event Actual Forecast Previous
  AUD RBA Governor Stevens Speaks        
  AUD Home Loans (MoM) (Dec)   3.0% 1.8%  
  EUR German CPI (MoM) (Jan)   -0.8% -0.8%  
  EUR German GDP (QoQ) (Q4)   0.3% 0.3%  
  EUR German GDP (YoY) (Q4)   2.3% 1.8%  
  EUR EU Finance Ministers Meeting        
  EUR GDP (YoY) (Q4)   1.5% 1.6%  
  EUR GDP (QoQ) (Q4)   0.3% 0.3%  
  EUR Industrial Production (MoM) (Dec)   0.3% -0.7%  
  USD Core Retail Sales (MoM) (Jan)   0.1% -0.1%  
  USD Export Price Index (MoM) (Jan)   -0.9% -1.1%  
  USD Import Price Index (MoM) (Jan)   -1.4% -1.2%  
  USD Retail Sales (MoM) (Jan)   0.1% -0.1%  
  USD FOMC Member Kaplan Speaks        
  USD Business Inventories (MoM) (Dec)   0.1% -0.2%  
  USD FOMC Member Dudley Speaks        
  USD Michigan Consumer Expectations   82.0 82.7

Government Bond Auctions

Date Time and Country

Feb 11 N/A Italy Euro 4-5bn 30-yr syndicated bond auction

Feb 11 11:03 Sweden Holds I/L bond auction

Feb 11 11:10 Italy Announces details of bond auction

Feb 11 11:30 UK 3.5% 2045 Gilt auction

Feb 11 19:00 US Holds 30-year bond auction

Feb 11 n/a US Details of 30-yr TIPS auction on Feb 18

Feb 12 11:10 France Details of bond auction on 18 Feb

 

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