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EUR/JPY Weekly Fundamental Analysis, April 25 – April 29, 2016 -Forecast

By:
James Hyerczyk
Published: Apr 23, 2016, 18:23 UTC

The EUR/JPY had a volatile week, which began with a bias to the upside as investors focused on the key European Central Bank interest rate decision and

EUR/JPY Weekly Fundamental Analysis, April 25 – April 29, 2016 -Forecast

The EUR/JPY had a volatile week, which began with a bias to the upside as investors focused on the key European Central Bank interest rate decision and President Mario Draghi post-announcement comments. Buyers were also coming in on expectations of further stimulus by the Bank of Japan.

On the Thursday, the EUR/JPY reached a high of 124.946 before getting hit by a huge selling pressure. The selling was strong enough to produce a technical reversal.

The Euro finished in negative territory against the Japanese Yen on April 21 after the ECB held its key interest rates unchanged. Earlier that day, the ECB chose to hold interest rates steady, keeping its main refinancing rate unchanged at 0.0 percent; the marginal lending rate unchanged at 0.25 percent and the deposit facility rate unchanged at -0.4 percent.

In the decision, the ECB announced it had started to expand their monthly purchases to 80 billion Euros, and that it is focusing on the implementation of the non-standard measures decided at their last monetary policy meeting on March 10. This could be an indication that quantitative easing is coming.

During the press conference that followed the interest rate announcement, Draghi warned that Euro Zone inflation might turn negative again in coming months. Since the central bank undertook the measures it did in March, the broad financing conditions saw signs of improvement, the ECB said. Draghi also stressed in the conference that the central bank hadn’t talked about helicopter money.

Friday was a different story as fresh news drove the EUR/JPY sharply higher and through the previous day’s high.

The week ended with the Euro rose against the Japanese Yen to its highest level since April 6 after a report said the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further.

The EUR/JPY settled at 125.434, up 2.752 or +2.24%. This was the biggest weekly gain for the Forex pair since March 10.

The BoJ could consider the new step if policymakers decide to lower the negative 0.1 percent interest rate applied to some bank reserves parked with the central bank, according to Bloomberg.

Friday’s headline news in itself was not the factor driving the Japanese Yen lower. It’s the possibility of further cuts later. The suggested move will actually give the Bank more room to cut rates deeper into negative territory later, and that’s what traders reacted to.

Currently, if the BoJ were to apply its negative rate policy to bank loans, it would allow the central bank to cut its deposit rates deeper into negative territory without acting as a headwind for the nation’s banks.

Friday’s price action suggests the ECB story is now old news with the focus clearly on the Bank of Japan’s decision on April 29. We should see the Euro continue to gain on the Yen throughout the week, but if buyers get what they are expecting from the BoJ then this may give long investors an excuse to book profits. The EUR/JPY could also break if the BoJ delivers less than the market is expecting.

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.

Weekly EUR/JPY, April 23, 2016
Weekly EUR/JPY, April 23, 2016

Major Economic Events for the week:

Cur. Event Actual Forecast Previous

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

  EUR German Ifo Business Climate Index (Apr)   107.0 106.7
  USD New Home Sales (Mar)   520K 512K

Tuesday, April 26, 2016

  USD Core Durable Goods Orders (MoM) (Mar)   0.5% -1.3%
  USD CB Consumer Confidence (Apr)   96.0 96.2
  AUD CPI (QoQ) (Q1)   0.3% 0.4%

Wednesday, April 27, 2016

  GBP GDP (QoQ) (Q1)   0.4% 0.6%
  GBP GDP (YoY) (Q1)   2.0% 2.1%
  USD Pending Home Sales (MoM) (Mar)   0.5% 3.5%
  USD Crude Oil Inventories   2.080M
  USD FOMC Statement  
  USD Fed Interest Rate Decision   0.50% 0.50%
  NZD Interest Rate Decision   2.25%

Thursday, April 28, 2016

  EUR German Unemployment Change (Apr)   4K
  USD GDP (QoQ) (Q1)   0.7% 1.4%

Friday, April 29, 2016

  JPY        Showa Day Holiday

  EUR CPI (YoY) (Apr)  
  CAD GDP (MoM) (Feb)   -0.1% 0.6%

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

Apr 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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