EUR/JPY Monthly Fundamental Forecast August 2012

Outlook and Recommendation

The EUR/JPY is trading at 96.04 but fell to hit is record low during the month trading at 94.12 before bouncing back upwards after comments from ECB President Draghi.

The Asian currency outlook is strongly shaped by the value of both the JPY and the Chinese renminbi (CNY). It is worth noting that, despite the still large foreign capital inflows eyeing the Chinese economy and its securities markets, the central bank with its massive international reserves in excess of US$3 trillion can dictate the USDCNY rate. In fact, the CNY has been depreciating versus the USD since early May, in stark contrast to the appreciating tone enjoyed by the JPY. The degree of economic deceleration in China is a key factor swaying financial market sentiment the world over. The authorities have not hesitated to change the course of the CNY to inject currency linked export competitiveness. Meanwhile the JPY and other regional higher yield currencies such as the Australian dollar (AUD) have benefitted considerably from  investor appetite over the past few months. 

We expect EURUSD to trend gradually lower. Meanwhile, it is highly probable that the ECB will resume a more active bond purchase programme in line with practices observed both in the US and the UK.

FxEmpire provides in-depth analysis for each currency and commodity 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 recent analysis and information in our  weekly reports and we provide daily updates and outlooks

Central Bank Name: European Central Bank

Date of next meeting or last meeting: Aug 02

Current Rate: Eurozone cuts Key Interest Rate to 0.75 % (- 0.25)

Statement highlights of last meeting: Based on our regular economic and monetary analyses, we decided to cut the key ECB interest rates by 25 basis points. Inflationary pressure over the policy-relevant horizon has been dampened further as some of the previously identified downside risks to the euro area growth outlook have materialized. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.

Economic events for the month of August affecting AUD, JPY and NZD