Chart of the Day EURJPY
Potential correction EURJPY
This week, we have monetary policy decisions from Bank of Japan (BOJ) on 21 Jan and European Central Bank (ECB) on 23 Jan. While both central banks are expected to keep policy rates unchanged in their January meetings, the BOJ is most likely to indicate their intention to ease policy soon.
Friday saw Eurozone inflation rose in December on higher energy cost: The final reading of December Eurozone HICP inflation rate was unchanged at 1.3% YOY in December (Nov: +1.0%) driven by higher cost of energy alongside consistent contribution by food, alcohol & tobacco as well as services. Core CPI posted a steady 1.3% YOY gain (Nov: +1.3%), as services inflation remained largely unchanged. The higher inflation was welcoming to the ECB but remained below its target of just below 2%.
There was no change to BOJ asset purchases overnight, something that was widely expected with the BOJ decision around the corner. Japan's FinMin Aso said the cabinet agreed to push the 2019 supplementary budget and 2020 regular budget forward, with the government aiming to pass the budgets quickly to ensure economic growth
Last week Japan core machine orders jumped in November, inflation benign: Japan core machine orders, a key gauge of business capex rebounded to increase by 18.0% MOM in November (Oct: -6.0%), its first gain in five months, supported by construction effort and activity following an October typhoon that caused disruption to the economy in 4Q. Meanwhile, producer prices inflation accelerated to 0.9% YOY in December (Nov: +0.1%) but pulled back to a mere 0.1% MOM in December (Nov: +0.2%) reflecting the ongoing lack of momentum in prices pressure.
From a technical and trading perspective, the EURJPY appears to be addressing a triple divergence day pressure, this third push into the latest swing high has registered significant divergence, while testing ascending trendline resistance. A failure below Friday’s low would be a bearish development, initially opening a retest of the yearly and monthly pivot confluence back towards 121.70/50, if bids fail to emerge here look for a test of ascending trendline support to 121, with a breach here opening a full test of year to date lows towards 120.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!