- Weak market sentiment helps JPY gather strength on Monday.
- Italy’s budget crisis keep investors away from the euro.
After spending the Asian session in a tight range near 129, the EUR/JPY lost more than 100 pips on Monday and fell to its lowest level of the month at 127.82. As of writing, the pair was trading at 127.95, losing 0.7% on a daily basis.
The uncertainty surrounding the potential negative impact of the EU’s response to Italy’s 2019 budget proposal on the euro area economy continues to weigh on the shared currency. Earlier today, Italy’s deputy Prime Minister Luigi Di Maio argued that the only way to respect EU parameters was to make a “suicidal budget law” that would cause a recession. Additionally, while speaking at an event in Germany, “Extending the macro-prudential framework to the asset management sector and developing policy tools to address emerging risks will be important. Italy is the main prominent case at the moment,” ECB Vice President Luis de Guindos said.
Commenting on the effect of Italian politics on the shared currency, “Italy may be part of the EU but its budget dispute it treating the EURUSD like the lira of old. The EURUSD is down 8.2% against the dollar since the Italian election on March 4th and 3.6% since the formation of the current League/5 Star government,” Joseph Trevisani, a senior analyst at FXStreet, said.
On the other hand, the risk-off mood as reflected by the dismal performance of global equity indexes on Monday boosts the demand for safe-haven currencies such as the JPY and forced the pair to extend its fall.
Technical outlook
The pair could face the first technical support at 127.80 (daily low) ahead of 127.25 (Oct. 29 low) and 126.60 (Oct. 26 low). On the upside, resistances align at 129.20 (daily high), 130.00 (psychological level) and 130.50 (Oct. 12 high).
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