EUR/JPY Fundamental Forecast – July 21, 2016

Expectations of fresh stimulus from the Bank of Japan as early as next week’s Bank of Japan’s monetary policy announcement on July 29, helped underpin the EUR/JPY early Wednesday. The Forex pair inched higher at 117.420, up 0.457 or +0.36%. It has traded sideways since July 15, which suggests it may have run into resistance, or buyers may have backed away ahead of Thursday’s European Central Bank meeting.

The ECB is scheduled to hold its regular policy meeting on July 21, its last before an eight-week summer break. The central bank is not expected to take any additional easing steps, but could sound a dovish tone, due to the impact of the U.K.’s decision to leave the European Union.

Although the ECB may sound dovish, it may not have too much of an effect on the direction of the EUR/JPY due to expectations of easing by the Bank of Japan, which is expected to weaken the Yen. If anything, a dovish ECB could limit the EUR/JPY’s short-term gains.

Japanese policymakers are unlikely to go as far as funding government spending through direct debt monetization, or “helicopter money” but might pursue a mix of aggressive fiscal and monetary expansion to battle deflation.

Earlier today, the Euro was underpinned by the news that German producer prices rose 0.4% in June, the same rate of increase for May and equaling the strongest pace of gains for two years with the data slightly stronger than the 0.2% gain expected by markets.

An uptrend may be developing in the EUR/JPY due to expectations of additional stimulus from the BOJ. However, gains may be limited by low volume and low volatility as investors continue to assess the potential impact of Brexit on the Euro Zone economy.

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.

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Thursday, July 21, 2016