The strengthening of EURJPY is a combination of the EUR expansion and a weakening of the JPY together, however, it seems that this move is largely driven by the EUR, given that the EURUSD moved sharply higher through June while the USDJPY was relatively stable.
The Yen is currently trading at the same level as the US Dollar as it did in early May. USDJPY started trading at 107 in May, compared to the recent closing price of 106.90. Meanwhile, the EURUSD remains significantly higher, the May opening price at 1.0950 compared to the recent close of 1.1300.
In general, expansionary monetary policy usually softens the value of a currency in the short term , because an increase in liquidity or an increase in the money supply, usually reduce funding costs. However, macroeconomic, performance differences and separately the demand for mechanical changes, such as repatriation of capital and changes in global risk sentiments and collective assessment of regional political and economic risks (trusts) are responsible for the larger, long-term movement.
But the current conditions are different, as we are currently experiencing in the midst of a pandemic and economic turmoil, the market seems to have lost interest in short-term pricing. As you know, in mid-May, there was a speculation that the European Central Bank will expand the Pandemic Emergency Purchasing Program by 500 billion euros, in early June the figure was confirmed as 600 billion euros and at the European summit this week there was a proposed expansion of the proposed program which is the proposed €750bn Recovery Fund. Events like this have fueled sentiment towards the recovery of the euro exchange rate in recent months.
The ECB has updated its economic projections, projecting the Eurozone economy to contract -8.7% in 2020. Changes that are significantly different from previous estimates for real GDP growth + 0.8% before, in March 2020. It seems that initial speculation for an increase ECB intervention, combined with validation in June, helped the EUR to move higher on the back of easing Eurozone pessimism.
The strengthening of the Euro against the Yen is an indication of the risk-on mode. The FX market, however, seems calm, with cross-risk FX classics such as USDJPY and AUDJPY now trading fairly stable in line with the beginning of Q1 2020.
In the rally of the EURJPY pair from the low price of 114.42 to 124.42, it has been noticed a retracement of 50.0%. Prices temporarily move in a narrow range above the 200-EMA, with the indication of the MACD in the OS zone. The ascending triangle trendline, implies a Support level at 119.30. Nearest minor Support at the price of 120.25, which if breaks it could retest the key Support level at 119.30. On the upside, the closest Resistance is 121.11 and the 121.96.
Breakout of the 121.96 level could retest the high level of 124.20, otherwise a breakout of the low 119.30 could usher in a decline in the test price of 118.00.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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