CFD Trading Rate Euro vs Japanese Yen (EURJPY)

• EUR/JPY continues trying but failing to breakout above the top of a range. 
• MACD is diverging bearishly with price and there is a strong possibility of decline unfolding. 

EUR/JPY is meeting a brick wall of resistance at the top of its ten-week range and despite repeated attempts has not been able to breakout higher. 

EUR/JPY 4-hour Chart 

The pair is in an overall range-bound market – its trend is sideways. Since it is a principle of technical analysis that trends tend to extend, the odds favor a continuation of the range. 

This suggests that the next move for EUR/JPY will be back down towards the range floor in the 154s. 

A move below 161.91 (October 8 low) would help confirm such a move was underway. A break below the trendline for the up leg at around 161.70 (black line on chart) would provide stronger confirmation. The next downside target for EUR/JPY would be at about 158.32 – the October 1 as well as September 30 lows. 

The Moving Average Convergence Divergence (MACD) momentum indicator is diverging bearishly with price (red dotted lines on chart). Whilst price has been making slightly higher highs with each breakout attempt, MACD has been declining. This is a further warning sign of losses to come.

Alternatively, it is possible that a decisive break above the range highs would indicate a breakout higher and the evolution of a new short-term uptrend. A decisive move would be one characterized by a longer-than-average green candlestick which cleared the range high and closed near its high, or three green candles in a row breaking above the top of the range. 

• EUR/JPY is testing the top of a multi-week range and could be about to reverse and fall. 
• Although price action has not yet reversed, the MACD is diverging bearishly with price.  

EUR/JPY tests the top of a nine-and-a-half-week range at around 163.50 as it continues unfolding its short-term sideways trend. 

EUR/JPY 4-hour Chart 

Given the principle of technical analysis that “the trend is your friend” the odds favor a continuation of this sideways mode. If so, then the next move for EUR/JPY will probably be a decline back down towards the range floor in the 154s. 

There are no reversal signs from the actual price yet, however, and it is too early to say with any confidence if the pair will break lower. A move below 161.91 (October 8 low) would be required to supply the additional bearish confirmation. For stronger confirmation price must break below the trendline for the up leg at around 161.70 (dotted black line on chart). The next downside target for EUR/JPY would be at about 158.32 – the October 1 as well as September 30 lows.

The Moving Average Convergence Divergence (MACD) momentum indicator is diverging bearishly with price (red dotted lines on chart). Whilst price is making higher highs, MACD is  declining. This is further evidence a downside move could be about to unfold.

On the other hand, a decisive break above the range highs would indicate a breakout of the range and the evolution of a new short-term uptrend. A decisive move would be one characterized by a longer-than-average green candlestick which cleared the range high and closed near its high, or three green candles in a row breaking above the top of the range.

• EUR/JPY has rallied up to the top of a medium-term range and risks rolling over as the mode extends. 
• MACD momentum is declining steadily suggesting underlying weakness. 

EUR/JPY rises up and almost touches the top of its nine-week range before treading water indecisively as traders await the next catalyst that will decide its future direction. 

EUR/JPY 4-hour Chart 

The pair is probably in a short-term sideways trend and given the guiding principle of technical analysis that “the trend is your friend”, this would suggest an extension of that sideways mode. If so, then the next move for EUR/JPY is likely to be back down towards the base of the range in the 154s. 

However, there are no reversal signs from price yet and so it is too early to say with any confidence that the pair will fall. A break below 161.00 would be required to supply the additional bearish confirmation to confirm such a down leg. The next downside target for EUR/JPY is at about 158.32 and the October 1 as well as September 30 lows. 

The Moving Average Convergence Divergence (MACD) momentum indicator is diverging bearishly with price. Although the MACD is currently declining, price is oscillating, suggesting weak underlying momentum underpins current price action and tilts the odds marginally in favor of more downside.

• EUR/JPY drops but remains focused on breaking above the key resistance of 163.50.
• Traders doubt the BoJ hiking rates again this year.
• The ECB is expected to cut its borrowing rates further by 50 bps this year.

The EUR/JPY pair falls to near 162.80 in Thursday’s European session after its second failed attempt to break above the September high of 163.50. The asset strives to extend its upside amid broader weakness in the Japanese Yen (JPY) due to fading speculation of more hikes from the Bank of Japan (BoJ) this year.

Traders appear to be cautious about the BoJ tightening its policy further this year as weak consumer spending has raised doubts over the maintenance of economic strength. Overall Household Spending, a key measure of consumer spending, declined by 1.9% in August from a nominal growth of 0.1% in July. Though the pace at which the consumer spending measure contracted in August was slower than expectations of a 2.6% decline, it prompted the need for fresh stimulus to boost private consumption.

Meanwhile, the Euro (EUR) has been underpinned against the Japanese Yen, its performance has remained weaker in comparison with other peers due to escalating European Central bank (ECB) dovish bets. Traders have priced in two more rate cuts of 25 basis points (bps) by the ECB this year, suggesting that the central bank will cut its Deposit Facility Rate in both the remaining meetings, which are scheduled for next week and in December.

A majority of ECB policymakers are open to more interest rate cuts as fears of inflation remaining sticky have waned due to worsening economic growth. The Annual Harmonized Index of Consumer Prices (HICP) in the Eurozone has decelerated to 1.8% in September, according to flash estimates. Also, the German economy, the Eurozone’s largest nation, is estimated to end the year with a 0.2% decline in output, as per the German economic ministry.

• EUR/JPY pulls back just before almost reaching the top of a medium-term range. 
• It may yet rally to the range ceiling or roll over as the sideways trend extends.  

EUR/JPY almost reaches the top of its nine-week-long range before stalling and unfolding a shallow pullback down to the mid 162s. 

EUR/JPY 4-hour Chart 

Given the shallowness of the pullback there remains a chance EUR/JPY could resume its up move and finally reach the top of the nine-week range in the 163.80s. 

However, the Moving Average Convergence Divergence (MACD) momentum indicator is crossing below its signal line, giving a sell signal and this could result in a reversal lower. 

The pair is in a short-term sideways trend most probably, which given the guiding principle of technical analysis that “the trend is your friend”, would suggest an extension of the sideways mode. If so, then the next move for EUR/JPY is likely to be back down towards the base of the range in the 154s. 

It is too soon to say with any confidence if this will happen, however, as there are no reversal signs from price itself, only the MACD. It is possible EUR/JPY could make a last rally higher before rolling over and beginning a new down leg in earnest. A break below 161.00 would supply additional bearish confirmation such a move was starting.

• EUR/JPY declines almost half a percent after the release of weaker-than-expected Retail Sales and Factory Orders. 
• Verbal intervention by Japanese officials stems JPY’s slow depreciation and adds to EUR/JPY’s downside. 
• A decline in German Factory Orders revives fears the country may be entering a recession. 

EUR/JPY trades down almost half a percent in the 162.50s on Monday as it closes in on the ceiling of its multi-week trading range from the early August lows. Bears are driving the Euro (EUR) lower following the release of lackluster macroeconomic data for the region. 

The pair faces further headwinds as the Japanese Yen (JPY) firms up following verbal intervention by the Japanese FX diplomat Atsushi Mimura who, seeing the currency’s recent weakness – especially against the US Dollar (USD) – cautioned against speculative moves. Continued demand for the Yen as a safe-haven amid an escalation in geopolitical risk stemming from the conflict in the Middle East further underpins the Japanese currency and adds down-side pressure to EUR/JPY.

Traders opt to sell the Euro on Monday after the release of Eurozone Retail Sales showed only a 0.80% annual rise in August which was weaker than the 1.0% expected, but higher than the 0.1% decline in July. German Factory Orders, meanwhile, declined by 5.8% on a seasonally adjusted basis in August, which was well below the 2.0% decline expected and the upwardly-revised 3.9% rise of the previous month. The data adds further veracity to the view that the country is sliding into a recession. 

EUR/JPY is likely to see its untidy progress higher capped by rising expectations that the European Central Bank (ECB) will cut interest rates at its meeting next week. Lower interest rates are usually negative for a currency as they reduce foreign capital inflows. 

ECB Governing Council member François Villeroy de Galhau said overnight that the ECB will “quite probably” cut interest rates at the meeting, adding the ECB has to pay attention to the risk of undershooting its 2.0% inflation target “due to a weak growth and a restrictive monetary policy for too long.” His comments “support market pricing for a total 150 bp of easing over the next 12 months” according to analysts at Brown Brothers Harriman (BBH).  

Most recently the Eurozone Harmonized Index of Consumer Prices (HICP) showed prices rose by 1.8% in September from 2.2% previously and below the 1.9% forecast, according to Eurostat. Core HICP fell to 2.7% from 2.8% previously and the same expected. The undershooting inflation data backs up comments from the ECB President Christine Lagarde who hinted that inflation was falling back to the central bank’s 2.0% target, as expected. "The latest developments strengthen our confidence that inflation will return to target in a timely manner," she said last week.

EUR/JPY had been on the rise last week after Japan’s new Prime Minister Shigeru Ishiba and his Economy Minister Ryosei Akazawa caution before raising interest rates given the “current economic conditions”. This wrong-footed markets which had expected him to take a neutral approach. 

• EUR/JPY drops sharply to near 162.70 as swelling ECB rate cut bets weigh on the Euro.
• ECB Villeroy warned about rising risks of Eurozone economic slowdown.
• Middle East tensions led to higher safe flows in favor of the Japanese Yen.

The EUR/JPY pair falls sharply from the seven-week high around 163.50 to near 162.70 in Monday’s European session. The cross weakens as the Euro (EUR) faces pressure amid rising speculation that the European Central Bank (ECB) could cut its key borrowing rates further in its policy meeting on October 17.

The ECB cut its Rate on Deposit Facility by 25 basis points (bps) to 3.5% on September 12. This was the ECB’s second dovish decision of its current policy-easing cycle. And, now more rate cuts are expected from the ECB this month as officials worry about growing risks of monetary policy remaining restrictive for too long, which suggests weak economic growth with confidence over inflation declining to the bank’s target of 2%.

This weekend, ECB policymaker and French Central Bank Chief François Villeroy de Galhau said in an interview with La Repubblica, "If we are next year sustainably at 2% inflation, and with still a sluggish growth outlook in Europe, there won’t be any reason for our monetary policy to remain restrictive, and our rates to be above the neutral rate of interest."

Meanwhile, a faster-than-expected slump in German Factory Orders in August has also pointed to weakening demand and the need for further policy-easing. Annually, Factory Orders declined by 3.9% after growing by 4.6% in July. Month-on-month new Factory Orders contracted at a faster-than-expected pace of 5.8%.

On the Tokyo front, conflicts between Israel and Iran in the Middle East region have resulted in safe flows to the Japanese Yen (JPY). The Japanese currency is also strengthened by renewed fears of a possible intervention as suggested by Japan's Finance Ministry's Vice Finance Minister for International Affairs Atsushi Mimura’s speech in Monday’s Asian session.