EUR/JPY - Euro to Japanese yen

EUR/JPY, or euro to Japanese yen, is a heavily traded currency pair. The Eurozone is the world's second largest economic region while Japan is the world's fourth-largest economy. As a safe haven currency, the yen tends to depreciate when global economic growth is high while sharply appreciating during downturns. The euro, on the other hand, tends to move in the opposite direction. Thus, the pair is often seen as a proxy for global sentiment. Prior to the French elections of 2017, investors went short EUR/JPY in order to hedge their long euro positions. Following the elections, the pair strengthened sharply as optimism returned to the Eurozone. 

Short term outlook
Neutral
Medium term outlook
Bullish

Euro daily update

The euro is up today (particularly against the US dollar), and has strengthened every day this past week. Looking at EUR/USD, the pair is now trading above the critical 1.25 level this morning. In general, the euro continues to benefit from good economic data and monetary policy tightening expectations. Yesterday, seasonally adjusted Eurozone trade balances were higher than expectations. All else held equal, higher net exports tends to strengthen the euro. Turning to politics,  Reuters is reporting that two thirds of SPD supporters back another German grand coalition according to a recent poll. 78% of conservatives also back another coalition. This is good news for Angela Merkel, especially as she has been heavily criticized for making too many concessions to the SPD. Looking at Italian elections, markets remain fairly complacent regarding the risk of a Euroskeptic party coming to power. The leading "5 Star Movement" has hinted that leaving the euro is unrealistic. Looking at election predictions, center-right parties affiliated with Silvio Berlusconi are currently leading the polls, but are unlikely to gain enough votes to form a majority government. We will upgrade our short-term outlook to bullish later today. Our medium-term outlook on the euro remains bullish. 

EUR/USD is currently up and trading above 1.2530. The euro is flat against the yen, with EUR/JPY trading above 132.660. Finally, the euro is flat against the pound, with EUR/GBP above 0.8870.

Looking at Eurozone economic data this week, we’ll see German consumer prices as well as Eurozone GDP growth and industrial production. The German harmonized index of consumer prices met expectations (1.4%). German (2.3% vs. 2.2% expected) and Eurozone (2.7%) Q4 GDP growth mostly met expectations. Eurozone industrial production was ahead of expectations (5.2% vs. 4.2% expected). Later today, we’ll see German wholesale price index figures. Last week, Eurozone composite PMIs were ahead of expectations, signaling strong future growth.

Updated 

Japanese yen daily update

The Japanese yen continues to strengthen today, particularly against the US dollar. As a safe haven currency, the yen tends to weaken when global growth is accelerating and strengthens during downturns. While the yen began rising following fears of an extended stock market rout, the currency continues to strengthen despite a rebound in most global stock markets. Looking at Japanese domestic data, weak quarterly GDP growth figures and falling machinery exports helped yen strength this week. Turning to monetary policy, the current Bank of Japan Governor Haruhiko Kuroda was appointed for a rare second term, despite his age (73). Kuroda was appointed alongside deputies including BoJ executive director Masayoshi Amamiya and Waseda University professor Masazumi Wakatabe. Both are well-known for their pro-monetary easing views. Unfortunately for the yen, this isn't enough to change the course of the currency as it continues to strengthen. Our short-term and medium-term outlook on the yen remains bullish.    

USD/JPY is currently trading above 105.80. EUR/JPY is currently flat and trading above 132.70.

Looking at Japanese economic data, traders will be focused on upcoming GDP figures. Annualized QoQ GDP growth numbers (0.5% vs. 0.9% expected) widely missed estimates. Machinery orders (-5% vs. 2.2% expected) missed expectations by a very wide margin due to falling exports. Industrial output (2.9% vs. 0.5% prior) was higher than previous figures. Cross-border stock (-¥429.5b) and bond (-¥973.2b) investments continue to suggest capital inflows into the country. Last week, cross-border figures also showed that capital was flowing into Japan (strengthening the yen). 

Updated 

Euro to Japanese yen Outlook

Short term outlook
Neutral

As the pair runs out of steam, we are downgrading EUR/JPY to neutral in the short-term. Note that the pair is trading within normal conditions - this is based on various technical indicators on a daily chart. 

Medium term outlook
Bullish

As the euro bull market continues, we are bullish on EUR/JPY in the medium-term. The pair is trading within normal conditions. This is based on various technical indicators when looking at a weekly chart. 

Updated 

Euro analysis

Euro has room to keep rising: COT Report

Looking at this week’s Commitments of Traders report, bullish extremes continue in the euro, British pound and crude oil. Looking at net speculator positions as a proportion of open interest, long crude oil positions are the most at risk. While euro and British pound net positions are elevated relative to historical averages, open interest has also grown over time. Thus neither currency look exte…

Published 
Tags: Euro

EUR/JPY: An “easy” long idea gets trickier

In early 2017, doubts regarding the integrity of the Eurozone led many to take refuge in the Japanese yen. Unlike the euro, the Japanese yen exhibits classic safe haven characteristics and tends to strengthen during downturns. Following the Brexit referendum vote and US presidential elections, few were willing to bet on opinion polls that predicted Macron’s victory. Similar to political events in…

Published 

‘Euroboom’ becomes the consensus favorite: COT Report

Looking at this week’s COT report, the British pound is now at a bullish extreme, while the Australian dollar is no longer at a bearish extreme. Bullish extremes continue in long euro and long crude oil speculator net positions. The purpose of this report is to track how the consensus is positioned across various currencies and commodities. When net long positions become crowded in either direct…

Published 

Japanese yen analysis

EUR/JPY: An “easy” long idea gets trickier

In early 2017, doubts regarding the integrity of the Eurozone led many to take refuge in the Japanese yen. Unlike the euro, the Japanese yen exhibits classic safe haven characteristics and tends to strengthen during downturns. Following the Brexit referendum vote and US presidential elections, few were willing to bet on opinion polls that predicted Macron’s victory. Similar to political events in…

Published 

Japanese yen: Bank of Japan versus interest rates

Japan has suffered from weak growth and inflation since the global financial crisis, and the Bank of Japan has frequently experimented with unorthodox monetary policies. In September 2016, the BoJ decided to directly target long-term interest rates. The so-called “yield curve control” (YCC) program fixed 10-year Japanese government bond (JGB) yields at 0%. If yields deviated from the BoJ’s target…

Published 
Tags: Japanese yen

BoJ preview: reversal rates and natural yield curves

As the Bank of Japan is one of the world’s most dovish central banks, market expectations for this week’s upcoming event are very limited. Governor Haruhiko Kuroda, who has overseen a $4T quantitative easing program and negative interest rates over his 5-year term at the Bank, is an unlikely candidate to bring about hawkish monetary policies. This is especially the case as domestic inflation rema…

Published 
Tags: Japanese yen

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