EUR/JPY Weekly Fundamental Analysis – February 15-19, 2016 -Forecast

Weekly Analysis and Recommendations:

The EUR/JPY fell 2.28% this week to end at 127.48 as the Japanese yen soared on safe haven moves.  Investors were also cheered by a 12.3 per cent rebound in US oil prices to $29.44 a barrel from an almost 13-year low on Thursday.  Lien said that all eyes next week would be on the Federal Reserve’s minutes of its last monetary policy meeting, due Wednesday.

She noted that the post-meeting statement suggested the central bank could leave interest rates unchanged at the mid-March meeting if markets remained unsettled. Though the Fed in December projected four quarter-point rate hikes this year, many analysts are now questioning if there is support for any increases this year.

Something has erupted in recent weeks that have overshadowed these flows.  This is the second bucket.  It has to do with market positioning.  The euro and yen have been used to purchase other assets.  This is because the cost of borrowing was low or negative and the currencies were weak or falling.  As investors liquidated the assets due to changed views or driven by money management considerations, the funding currency had to be bought.

Another part of this bucket is the unwinding of hedges.  Specifically, a popular trade was to buy European stocks and hedge the euro.  Japanese stocks would be bought, and the yen hedged.  The Dow Jones Stoxx 600 is off more than 16% this year.  Italian stock, among the best European performers last year, has fallen by more than a quarter this year.  The Nikkei is down 17.5%, and the Topix has fallen 18.3%.  The S&P 500 is 11% in comparison.

Until the very end of last year, the divergence of monetary policy was driven not by the Federal Reserve but by the easing of other central banks, including the introduction of negative rates by the ECB.  The Fed’s rate hike in mid-December suggested to us a new phase in the divergence meme.  Both sides would be moving.  Instead, here in mid-Q1 16, it seems that markets are back to the earlier divergence where the BOJ and ECB are easing while the Fed stands pat

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.

Major Economic Events for the week:

Upcoming Government Bond Auctions

Date Time Country 

Feb 15 13:00 Norway Details of bond auction on Feb 17

Feb 17 11:03 Sweden Holds bond auction

Feb 17 11:05 Norway Holds bond auction

Feb 17 11:30 Germany Euro 5bn 0.5% Feb 2026 Bund

Feb 17 11:30 UK New Jul 2026 Gilt auction

Feb 18 10:30 Spain Holds bond auction

Feb 18 11:50 France Holds bond auction

Feb 18 17:20 Sweden Details of I/L auction on Feb 25

Feb 19 11:10 Italy Details of BTP€i/Zero-coupon auction