Weekly analysis EUR/JPY

Yen on the decline

The currency markets have exploded to life in 2013 after an extremely quiet final quarter of 2012.
The current climate is dominated by the continued strengthening of the euro and the hastening decline of the yen.
The eurozone has seen the beginnings of stability, and even signs of recovery. Large institutions such as Goldman Sachs have issued large buy notes on the currency, targeting highs of up to 1.4000 on the EUR/USD.

Breaking the inflation mould

Meanwhile in Japan, the BOJ continues to push through strong fiscal policies that are designed to end the decades of deflation that have brought the country’s economy to a virtual standstill. These policies include a doubling of the inflation target to 2%.  This has resulted in the yen losing up to 9% in value against the USD currency.

The obvious currency pair in focus this week is the EUR/JPY, which has experienced a sharp incline, as the euro’s strength has combined with the yen’s weakness to provide some fantastic trading opportunities and sustained moves to the upside.

The pair began the week at 119.50, corrected back to 117.00, before making its major move of the week all the way to 122.00. The average daily range on the pair has increased to over 200 pips - not seen for over 2 years.

The trading week of the EUR/JPY

The week began quietly for both currencies with the US bank holiday, resulting in low liquidity and difficult trading conditions for most of the sessions, on Monday.

By Tuesday the pair was giving up earlier gains and falling down to a weekly low of 117.00, as the ECB seemed to be suggesting that the euro had gained too much value - rumours surfaced that the central bank may act to weaken the single currency. In Japan, the Government stated it would be undertaking strong fiscal measures in 2014, which disappointed the markets who were expecting action much sooner.

The pair began trading higher through Wednesday and Thursday after the ECB president stated that any talk of an intervention was nonsense and that the EU area is in fact recovering very well. The Japanese also began the day by declaring that they would indeed be taking bold action to achieve the new 2% inflation target, which boosted the markets and resumed the yen shorting from the previous week. By the close of trading on Thursday the pair had recovered all of its losses and was once again trading at the 119.50 level.

Friday’s session opened with the news that Japan will be pushing ahead with powerful easing measures designed to stimulate growth, but denied that it was deliberately entering into a currency manipulation program, as suggested by the US.

The resulting move saw the pair push up to a high of around 122.00, which is a price not seen since the beginning of 2011.

Dean Peters-Wright
Trading Education Manager
etruvian (Gibraltar) LTD
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Email: dean.peters-wright@tradimo.com
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