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EUR/JPY Forecast 20 May 2013

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EUR/JPY Forecast 20 May 2013
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JPY strength has been largely corrected

Kicking off this week we are presenting to the binary options traders a focus view of the EURJPY currency pair. Overnight some disturbing news out of North Korea possibly accompanied by a comment by Japanese economy minister Amari that JPY strength has been largely corrected sent the EUR tumbling as increased risk and jawboning did hit all the JPY crosses.

Politics and North Korean Tension

Following an initial low around 130.90 the pair quickly snapped back towards the 132 figure, as market participants realized that it would take much more than a comment from a government official to stop the sharp trend in the pair.

Meanwhile Mr. Abe is quite unlikely to succeed in limiting inbound foreign direct investments into the country’s hot asset market. Japanese government raised its assessment of the economy in the month of May for the first time in a couple of months. This is great news for the country’s yen depreciation policy - growth is accelerating, exports and factory output are picking up.

Economic activity is gradually picking up, according to the government's monthly economic report released on Monday. That was a much better tone from last month, when the government communicated the economy was showing signs of stabilization but still had some bleak spots.

Japanese GDP has risen at its quickest pace in a year in the first quarter of 2013 following an unprecedented amount of monetary policy stimulus. Gains were well paced in consumer spending and a solid rebound in exports helped the economy recover from a slump last year. Dramatic monetary easing to boost the economy is resulting in a steady slump of the yen.

European factors today are limited to industrial orders out of Italy at 08:00 GMT with expectations for a drop of 1% month on month and 4.7% year on year. On the hot political front in the country Italian Prime Minister Enrico Letta promised a wide package of structural reforms, but first on the agenda seems to be a rebuke of the property taxes, addressing one of the main issues dividing his coalition government.

Whilst Letta gave no details on where he would find the billions of euros to pay for this action he confirmed his intention to suspend the widely hated tax on principal residences put in place by his predecessor Mario Monti. So far he has held back from the demands of center right members of his fragile left-right coalition for it to be erased in its entirety.

The suspension of payments due next month was cheered by center-right leader Silvio Berlusconi, who did promise preemptive suspension of the tax one of the tax in his recent election campaign.

Looking at the chart we see structural support in the vicinity of 131.20-30 area and should prices drift lower it will provide a good opportunity to buy calls on this widely traded and volatile pair. Last support level in this upward trend is around this morning’s low at 130.90.

First upside resistance is 132.50-60 area, which was the closing level on Friday – if broken that could provide further momentum to the pair and a subsequent test of levels around 132.70-80, where we find last week’s highs in EURJPY.

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