- The euro continues to bounce around against the Japanese yen, as we have seen a lot of noisy behavior.
- Nonetheless, the market is likely to continue to be difficult to gauge, as the Bank of Japan has been pretending like they are going to become aggressively tight.
- While there is little bit of inflation in Japan, the reality is that the interest rate in Japan will remain very low, and currencies around the world will continue to pay positive swap against the lowly Japanese yen.
Technical Analysis
The technical analysis for this EUR/JPY pair is rather straightforward, as we have been in a range for several months. The ¥155 level underneath is significant support, while the ¥165 level above is significant resistance. Between here and there, the ¥160 level is an area that is essentially “fair value.” It’s also worth noting that the 50 Day EMA is sitting right around the ¥160 level as well, and therefore I think you have to look at it as a very difficult barrier to deal with. If we can break above that, then I think it shows a significant amount of “risk on behavior”, but right now I just don’t see that being the norm.
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On the other hand, if we were to break down below the ¥155 level, then the market could drop down to the ¥154 level rather rapidly, perhaps even down to the ¥153 level after that. In that environment, you would probably see the Japanese yen strengthen against almost everything, not just the euro. After all, JPY-related pairs tend to all move in the same direction, therefore I think you’ve got a situation where you need to pay attention to all of these markets and recognize the influence it will have on this pair in general. Ultimately, this is part of the so-called “carry trade”, which has been suffering and languishing as of late.
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