- EUR/JPY is currently trading at 118.80 having fallen from a high of 119.51.
- An attack on Saudi oil facilities that saw the Kingdom’s oil output cut in half, as well as poor Chinese data, spark up a flight to safety again.
- Markets are looking for more to come from the ECB in due course which leaves the euro subject to further downside.
EUR/JPY started the week off in the red as risk-off ensued following a surge in Crude prices due to an attack on Saudi oil facilities that saw the Kingdom’s oil output cut in half. EUR/JPY opened with a bearish gap and is currently down around 0.80% and in a technically bearish set-up as the price moves lower from descending channel resistance.
EUR/JPY is currently trading at 118.80 having fallen from a high of 119.51 to a low of 118.69. Global stocks are suffering and EUR/JPY correlates to the health of global risk appetite and benchmarks such as the DAX, S&P as well as Asian indices. Overnight, data in the world’s second-largest economy disappointed again with China’s fixed-asset investments and industrial production arriving very weak for August while retail sales growth was moderate. Premier Li Keqiang said that 6% GDP growth will be hard to achieve and this has upset the pace of which risk appetite had been recovering.
Looking for more to come from the ECB in due course
Closer to home, the European Central Bank failed to deliver what the markets had been expecting with respect to stimulus measures where the onus was put on the individual nations to provide fiscal stimulus. Large-scale fiscal stimulus is unlikely to come through, and instead, markets are looking for more to come from the ECB in due course which leaves the euro subject to further downside.
Net EUR short positions edged even higher last week ahead of the September ECB meeting and we saw some short covering on the announcements. However, we have seen a 61.8% retracement of the rally and another test below the psychological 1.10 handle in EUR/USD.
Going forward, Italian politics and Brexit remain potential negative factors for the EUR as does the Federal Reserve interest rate decision this week – depending on the decision, subsequent announcements and projections.
As for the JPY, net positions had been back in the positive ground for six straight weeks on safe-haven demand. “Fears about the outlook for the global economy pressured risk appetite over the summer. While hopes for high-level trade talks between the US and China in October have brought a reprieve, tensions between the US and Iran could be rising,” analysts at Rabobank explained.
The cross is making the case for a test of the bottom of the descending channel. First, the cross will need to overcome a) 118.35 support and, b) the spike lows of the ECB event candle which are located around 117.55. Below there, 116.58/115.87 are a target.