EUR/JPY Fundamental Analysis October 10, 2014 Forecast

The EUR/JPY reversed Wednesday’s rally with a sharp sell-off on Thursday. The catalyst behind the move was investors dumping risky assets in favor of the safety of the lower-yielding Japanese Yen.

The Euro also felt pressure, following bearish comments from European Central Bank President Mario Draghi. The Euro declined against the Japanese Yen after Draghi said the central Bank must lift inflation from an “excessively low” level.

Thursday’s reaction shows just how sensitive the Euro is to any negative comments. It also indicates that the short-term rallies are just short-covering, designed to alleviate the selling pressure, but also to set up the next shorting opportunity.

The weakness in the global equity markets continued to drive the Japanese Yen higher because of the carry trade. Traders who borrowed in Yen to invest into stocks are now selling stocks and returning the borrowed money to the Japanese banks.

The main trend is still up on the daily chart, but the market is rapidly approaching the price that will change the main trend to down if taken out with conviction. This is likely to occur if support for equities continues to erode.

On Friday, traders are likely to react to the release of the latest Bank of Japan minutes.

Look for early weakness because of the downside momentum by the global equity indices into the close. The EUR/JPY could firm if stocks stabilize. Otherwise, look for more selling pressure if equities continue to sell-off.

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 up to the data analysis and information in our weekly reports

 

Today’s Economic Releases

 

                Currency                                                  Event                                                     Forecast        Previous

                

                 EUR                                          French Industrial Production                                 -0.2%             0.2%

                 GBP                                          Trade Balance                                                       -9.6B             -10.2B

                 CAD                                          Employment Change                                            18.7K            -11.0K

                 CAD                                          Unemployment Rate                                              7.0%              7.0%

                 USD                                          Import Prices m/m                                                -0.5%             -0.9%

                 USD                                          FOMC Member Plosser Speaks

                 ALL                                           IMF Meetings

                 CAD                                          BOC Business Outlook Survey

                 ALL                                           G20 Meetings

                 USD                                          FOMC Member Fisher Speaks