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EUR/JPY Forecast 11 Jun 2013

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EUR/JPY Chart 11/06/2013
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BOJ Stands Pat, Providing Some Relief For JPY Bulls

As price action kicks off this early European Tuesday morning we will turn the attention of binary options traders to one of our favourites – the EUR/JPY pair. As we drew closer to the Japanese market opening we saw yet another spike higher to levels around 131.30 – almost testing highs set on the 19th-20th of May.

The Euro tanked against the yen

However since the Japanese market opened in anticipation of the BOJ policy meeting market started giving up gains to test the previous resistance level in the 129.95 – 130.00 area. The FT reporting on Italian local election results emphasized that there is a solid bounce-back in support for the centre-left Democratic Party. The paper clarified that the Berlusconi alliance lost ground in several municipalities, while support for the radical Five Star movement also dropped.

The Euro tanked against the yen after the Bank of Japan kept its monetary policy unchanged and refrained from unveiling fresh monetary stimulus measures, in particular to curb bond market volatility. Traders have been focusing their attention on whether the BOJ would adopt additional steps such as the rumored yesterday extension of its fixed rate lending to a two year period. The rate dropped to 129.93 in the wake of the news and it is only now tentatively stabilizing at around 130.30 as of writing looking fro fresh impetus which should be provided by the press conference by the BOJ at 06:30 GMT.

The central bank upped its view on the economy stating that industrial output has been picking up, with exports starting to grow. They maintained their previous commitment to buy Japanese Government Bonds, essentially expanding the money supply at an annual pace of 50 trillion JPY and raising the monetary base at an annual pace of 60 to 70 trillion.

Tuesday's calendar events continue at 0800GMT, when ECB Governing Council member from Finland Erkki Liikanen will speak before the press in Helsinki on the economy. At the same time at 0800GMT, the German Constitutional Court starts hearing arguments over the programs of the ECB – the OMT, in Karlsruhe. No outcome from that is expected until the Autumn.

At 1000GMT, the EU Commission will state its proposals on extending the automatic exchange of tax information to all income sources. At 1315GMT, the Eurogroup President Jeroen Dijsselbloem, Dutch Prime Minister Mark Rutte and EU Economics and Monetary Affairs Commissioner Olli Rehn are to meet in the Hague, not much is expected from that meeting, but still there could be some market moving headlines.

Paying attention to the chart we see as important support levels another test of 129.90-130.00 we would be cautiously buying calls below those levels with focus on the near upside potential coming in at post BOJ pullback highs around 130.70. On the upside the strong resistance between 131.30 and 131.40 should contain swift moves to the upside, so we favor selling should those levels be reached.

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