EUR/JPY. Reversal expectations.

FX:EURJPY   Euro / Japanese Yen
On Tuesday European CPI was published. Inflation in the Eurozone is slowing down – the preliminary fact for May was +1,2% (the previous fact was +1,7%).

On Thursday, we are expecting the ECB’s meeting. ECB is going to make a decision about the interest rate. Analysts expect that the interest rate will remain at the same 0% level. Consequently, we have to listen to the comments from monetary authorities. Positive statements may give the euro a push up. Otherwise, we will see a downtrend.

The problem for ECB is that it does not have enough ways to stimulate the economy. At the same time, the biggest economies in the Eurozone are facing global trade risks connected with the China-US relationship. Chinese economy may start slowing down. For example, IMF downgraded the Chinese GDP forecast. The new forecast is 6,2% this year and 6% the following year. As a result, we see that more and more European PMIs are heading down.

Meanwhile the situation in Japan is not looking optimistic either. Japan is tight knitted with China. Trading risks might have a strong impact on JPY.

The question ‘Which country is going to suffer more?’ remains open.

In the short-term period, we believe that EUR can gain ground against the Japanese currency.

Technical analysis

On the daily time frame EUR/JPY reached he lowest low at 120,784. After that it formed the ‘piercing pattern’. The pair is trying to break the trend line . If it breaks this line the next target is 23,6% Fibo correction level. After the breakthrough the next target is 123,085 (38,2% Fibo correction).

Summary: Long positions are possible if EUR breaks 122,205 up.

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