Nothing like central bank policy decisions to shake up currencies, and we’ve got two this week that could decide whether the downward move in EUR/JPY is real or a fakeout.
Trend Change in EUR/JPY?
Fundamentally we’ve got a couple of events that could spark volatility in EUR/JPY, both top tier events in the form of monetary policy meetings and decisions from both the European Central Bank and the Bank of Japan.
Click on the links to read some analysis from my main man Pip Diddy on what we may get from both events, but the jist of it is that while no major changes are expected, we should be on the lookout for possible hints on when quantitative easing measures are likely to be exited and what conditions may prompt an exit.
For me, I think an exit from the ECB is more priced in than one from the BOJ since inflation recovery has been further behind in Japan, also the recovery in Europe is much further along and likely topping out as sentiment indicators like IHS Markit’s PMI pulls back from historically high levels. Basically, I do think the optimism in Europe is getting long in the tooth, leaving very little upside for the economy and possibly the euro.
Meanwhile in Japan, if inflation and growth continues to improve and the BOJ mentions this at their meeting this week (a likely case given the “tiny taper” by the BOJ last week), the market could possibly react by buying up some yen in the short-term.
In terms of price action, EUR/JPY broke a rising trend of higher “lows” in February, but we’re seeing a bounce as risk sentiment jumped today after positive developments with North Korea. This is all just early talk so I’m not sure if this will have a longer term impact on the broad markets, but if it has EUR/JPY testing the broken trendline and Fibonacci area, then I’ll be on the looking for resistance patterns around 132.00 – 134.00 to enter a longer-term short position.
So it’s what and see what the ECB and BOJ have to say, so stay tuned for updates and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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