EUR/JPY Fundamental Forecast – May 19, 2016

The EUR/JPY is trading lower at 123.274, down 0.200 or -0.16% as investors await the Euro Zone’s Final CPI y/y and Final Core CPI y/y reports. Final CPI is expected to come in at -0.2%. Final Core CPI is expected to show a reading of 0.7%. A lower-than-expected number should put pressure on the Euro.

Earlier in the session, the EUR/JPY had a mixed reaction to Japan’s gross domestic product report. Gross domestic product expanded a surprisingly strong 1.7% in the first quarter on an annualized basis from the quarter before. Beneath the surface, however, the performance doesn’t inspire confidence, which likely means additional stimulus should be expected.

The previous quarter’s growth was revised down the mirror opposite -1.7%, which makes the basis for comparison lower. Meantime, even though consumer-spending seemed strong, it was boosted by the extra day in February this year. Business capital spending plunged also.

The fresh GDP data confirms Japan’s on-again, off-again economy. For four quarters in a row, Japan’s economy has alternated between growth and contraction. Part of that is because Japan’s trend growth is so low, negative GDP is bound to happen. But it also signals a weak underlying economy. The end result is that output was the same last quarter as it was a year earlier.

The GDP report combined with stubbornly low inflation likely means further Bank of Japan easing seems equally in the cards. The GDP report also reflects numbers from a quarter that showed the Yen up 3%. This quarter, the Yen is up 10% so growth could be substantially lower with the weight of a stronger currency on exports. Therefore, it is easy to conclude that the Japanese government has to come back with additional stimulus.

Look for a rally if the CPI comes out flat or better-than-the estimate. A downside bias should develop if the Euro Zone CPI report shows inflation below expectations.

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, May 19, 2016

Government Bond Auctions

Date Time       Country           Auction

May 18 11:30 Germany Eur 4bn Feb 2026 Bund

May 18 17:20 Sweden Announces details of bond auction on May 25

May 19 10:30 Spain Holds bond auction

May 19 11:03 Sweden Hold bond auction

May 19 11:50 France Holds bond auction

May 20 11:03 Sweden Sek 1.992bn 0.5% Jun 2017 I/L bond