EUR/JPY Fundamental Forecast – September 1, 2016

The EUR/JPY traded marginally higher on Wednesday at 115.077, up 0.370 or +0.32%. After consolidating almost the entire month of August, the Forex pair is picking up strength. If upside momentum continues over the near-term, we could see a fast rally into the 116.50 area.

This Forex pair is often associated with strong trends because it is essentially a risk on, risk off currency pair. Because of this, it is very closely correlated to the major U.S. stock indices. During bullish trends, investors tend to buy the Euro and sell the Japanese Yen. However, conditions have changed since the European Central Bank began its negative interest rate policy. Now both the Yen and the Euro can be considered “funding” currencies. In other words, investors borrow money in these currencies then sell them to invest in U.S. stocks.

Prior to the Brexit vote, investors were selling the Euro and buying the Japanese Yen for safety. Since bottoming on June 24 at 109.519, the EUR/JPY has essentially become rangebound although the major stock indices have reached new all-time highs.

During the summer, the Bank of Japan announced new monetary policy stimulus measures and the Japanese government announced new fiscal stimulus measures. Both proposals failed to excite investors. When the European Central Bank last met over a month ago, it decided to leave it policy intact. Since then, however, the economy has showed little improvement, suggesting the current stimulus measures may have to be adjusted.

On Wednesday, the Euro Zone delivered flat economic data, despite massive amounts of stimulus from the European Central Bank. This includes the implementation of negative interest rates. According to report, the Euro Zone Core CPI came in at 0.2%, slightly below the 0.3% estimate. The Euro Zone Unemployment Rate was 10.1%, in line with expectations. The relatively low readings have to raise concerns with the ECB, who will likely discuss new ways to stimulate the economy at its next meeting on September 8.

In Japan, industrial production for July missed the estimate badly, coming in at 0.0%, down from a 2.3% gain in June and well-off the 0.8% forecast. However, year to year housing starts beat the 7.6% estimate with an 8.9% reading. The last report showed a 2.5% decline. The industrial production miss suggests the Japanese economy was failing to make progress at the start of the third quarter.

Since the EUR/JPY is breaking out to the upside after several weeks of consolidation, we’re looking for the trend to continue to gain traction today because that is where the money is flowing. However, the current chart pattern indicates that gains will be limited because we are essentially in a long-term rangebound market.

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, September 1, 2016

Government Bond Auctions

Date/Time Country Type

Aug 31 11:05 Norway Holds bond auction

Aug 31 11:30 Germany Eur 4bn Sep 2018 Schatz

Sep 01 10:30 Spain Holds bond auction

Sep 01 11:30 UK Jul 2022 Gilt

Sep 01 11:50 France Holds bond auction