Any USD/JPY move towards 100.00 benefits the EUR

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The EUR has been in the spotlight overnight, as the currency dipped to the 1.2955 level after German IFO numbers were released.

The Business Climate portion of the IFO number for Germany decreased from 106.7 in March to 104.4 in April. The market consensus had expected an decrease to 106.2. IFO Current Assessment fell to 107.2 in April from 109.9 in March, which was also lower than the expected 109.5, and IFO Expectations also fell to 101.6 from 103.6. The expectations were for a decline to 103.0.

The market seemed to be “short” EUR ahead of the IFO release and this has seen some profit taking in the EUR, preventing the currency from moving lower. Technical support level at 1.2940 is now the key level for traders to watch. Analysts expect this level to be tested and the break there could see the EUR move towards 1.2835-40.

The poor economic data coming from the Euro zone has raised expectations that the ECB will move to cut rates at their next meeting. Yesterday’s poor PMI numbers from Germany coupled with today’s IFO release have shown that the Euro zone’s largest economy is now stalling, and a rate cut is inevitable. The ECB meets on May 2.

Market analysts are divided as to whether a rate cut will have the desired effect. These analysts are still waiting for the ECB to do more than just cut rates as a way to ease the EUR. The ECB has been hesitant to follow other central banks’ policies of adding liquidity (QE) to their markets to help jump start the economies.

As far as the currency is concerned, with the IFO release now in the “rear-view” mirror, EUR actually seems to have gotten a “bid-tone” as we head into the North American trading day. Resistance levels for the EUR come in at 1.3010, and 1.3030.

In other currencies, the USD/JPY continues to flirt, but not break the 100.00 level as traders await the Bank of Japan meeting later this week. The Bank of Japan is expected to continue its policy of quantitative easing and most probably will expand this policy.

The BOJ is intent on meeting their 2% GDP target and further easing will help achieve this goal. Odds are announcements from the BOJ will be the impetus needed to push the USD/JPY through the 100.00 level.

Technically, there is resistance at 99.80 ahead of the 100.00 level. Anticipated stop loss orders above 100.00 could see a quick move towards 100.50 following the break. Support remains at 99.30 and 99.10.

Expect trading to remain range bound for the rest of today. Any USD/JPY move towards 100.00 benefits the EUR as EUR/JPY buyers will emerge.

Further reading: Forex Analysis: USD/JPY Rises to Approach Major 100.00 Resistance

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About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.