EUR/JPY Monthly Fundamental Forecast – November 2015

Outlook and Recommendation

The EUR/JPY dipped 27 points to 132.70 after a volatile month that saw the euro drop 200 points in one day after Mario Draghi promised additional stimulus in December, while the Bank of Japan withheld stimulus and said that the Japanese economy did not need any additional stimulus.

The euro weakened 1.5 percent in October, the most since May, to about $1.10. The tumble shattered a period of calm, lifting a measure of anticipated swings in the euro from the lowest in about eight months. Three-month implied volatility in the euro-dollar rate rose to 10.75 percent Friday, from as low as 9.13 percent this month. It’s still below the average for 2015.

“The ECB has signaled more easing, and we have the Fed signaling a rate hike this year can be in store,” said Morten Halt, a senior analyst at Danske Bank A/S in Copenhagen. “This has increased uncertainties a lot, and that’s what the market is pricing in.”

Markets widely expected that the Bank of Japan would announce fresh monetary policy easing through its recent meeting, but the central bank’s policy board caused a stir as it voted 8-1 in favor of maintaining the current level of Quantitative Easing purchases. The news sparked an immediate Japanese Yen rally. Yet the initial JPY rally proves short-lived as few seemed willing to chase sudden yen strength.

Recent disappointments in National CPI inflation figures greatly increased the odds of fresh BoJ action, but Kuroda made it clear that the central bank would be far more circumspect in any decision to boost QE purchases through the foreseeable future. Kuroda and his fellow board members emphasized that sharp drops in energy prices overstated the risk of deflation. And most importantly, the risks of further action outweighed the potential benefit.

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.

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