EUR/JPY Weekly Fundamental Analysis – Week of May 23, 2016

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Published: May 21, 2016, 07:24 UTC

The EUR/JPY closed the week at 123.63 as the euro weakened on low inflation but kept pace with weakness in the yen as traders focused on BoJ

EUR/JPY Weekly Fundamental Analysis – Week of May 23, 2016

The EUR/JPY closed the week at 123.63 as the euro weakened on low inflation but kept pace with weakness in the yen as traders focused on BoJ intervention. The dollar slumped 12 percent versus the yen, 7 percent versus the euro, and 7 percent against 10 peers this year before turning higher this month.

More neutral positioning signals room for dollar gains. Hedge funds and other large speculators cutting bets against the dollar this week after turning net bearish on the currency for the first time since 2014 at the end of April, data from the Commodity Futures Trading Commission show.

“The dollar cycle isn’t old enough to die of old age,” Saravelos wrote. “Recent weakness has likely run its course.” For Deutsche Bank, the dollar’s biggest gains will be versus emerging markets, partly because they rely less on Fed expectations.

If the ECB or the Bank of Japan unleash the helicopters, the goal would be deflation-busting. Deflation is bad news for any economy. Disinflation (the slowing rate of price increases) or deflation (outright falling prices) means governments and households can’t inflate their debt burdens away, and the euro zone countries are generally soaked in debt. Falling prices can cripple an economy because an item or service offered today will only become cheaper tomorrow, so everyone stops buying and investing.

To be sure, not all the free money would be spent. But a lot would. Demand would rise, theoretically lifting prices, employment and wages. The currency would weaken as the money supply increased, boosting exports (much to the ECB’s delight, QE has pushed down the euro). It worked in Japan in the 1930s.

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:


	Cur.	Event	Actual	Forecast	Previous
Monday, May 23, 2016
		Canada – Victoria Day
Tuesday, May 24, 2016
	USD	New Home Sales (Apr)		523K	511K
Wednesday, May 25, 2016
	CAD	Interest Rate Decision		0.50%	0.50%
	USD	Crude Oil Inventories			1.310M
Thursday, May 26, 2016
	GBP	GDP (QoQ) (Q1)		0.4%	0.4%
	GBP	GDP (YoY) (Q1)		2.1%	2.1%
	USD	Core Durable Goods Orders (MoM) (Apr)		0.3%	-0.2%
	USD	Pending Home Sales (MoM) (Apr)		0.6%	1.4%
Friday, May 27, 2016
	USD	GDP (QoQ) (Q1)		0.9%	0.5%