15 Jan 2014
EUR/JPY retains short-term bearishness but remains in consolidation in the medium term
FXstreet.com (London) - EUR/JPY has seen some consolidation at JPY142.0250 after a bearish trend through the session.
Weak but stable European data
European data today has fallen largely into line with expectations. German data showed low but stable growth while Spanish CPI posted improved numbers, albeit still extremely weak at 0.1 percent and a harmonised CPI posted zero inflation.
Data also showed that Germany's price-adjusted GDP expanded 0.4 percent in 2013 slowing from the 0.7 percent rise in 2012.
Diverging ECB and BoJ balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is in a period of contraction. This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion a month.
In addition, this week's trade balance numbers have highlighted the diverging directions of travel for the respective economies. On Tuesday, Japanese data showed a record trade deficit running at JPY592.1bn, driven wider by a weak yen pushing up import prices. By contrast, Eurozone data released this morning showed that the economic area is running a EUR17.1bn surplus.
Recent consolidation suggests that EUR/JPY may have strayed into overbought territory with some room for consolidation. However, should the Bank of Japan ramp up its aggressive bond buying programme, we may see some further EUR/JPY upside.
EUR/JPY is currently trading at JPY141.9830, down 0.43 percent on the day.
Weak but stable European data
European data today has fallen largely into line with expectations. German data showed low but stable growth while Spanish CPI posted improved numbers, albeit still extremely weak at 0.1 percent and a harmonised CPI posted zero inflation.
Data also showed that Germany's price-adjusted GDP expanded 0.4 percent in 2013 slowing from the 0.7 percent rise in 2012.
Diverging ECB and BoJ balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is in a period of contraction. This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion a month.
In addition, this week's trade balance numbers have highlighted the diverging directions of travel for the respective economies. On Tuesday, Japanese data showed a record trade deficit running at JPY592.1bn, driven wider by a weak yen pushing up import prices. By contrast, Eurozone data released this morning showed that the economic area is running a EUR17.1bn surplus.
Recent consolidation suggests that EUR/JPY may have strayed into overbought territory with some room for consolidation. However, should the Bank of Japan ramp up its aggressive bond buying programme, we may see some further EUR/JPY upside.
EUR/JPY is currently trading at JPY141.9830, down 0.43 percent on the day.