The EUR has moved lower after the latest ECB Monthly Report stated that a stronger EUR poses a risk to inflation. The report also stated that the ECB expects economic recovery to begin later this year, but did not clarify when.
The comments from the monthly statement were not different from comments made after the ECB policy meeting last Thursday and they seem to have had the same effect. EUR has tested support at 1.3370 and is currently trading just above that level. “Long” EUR positions were quickly liquidated after the report release.
Other information from the monthly report include comments on Eurozone inflation. The governing council expects inflation to fall below 2% in the next few months. It also stated that “medium to longer-term inflation expectations for the euro area remain firmly in line with the governing council’s am of maintaining inflation rates below, but close to 2%”. Monetary policy will remain “accomodative”.
The next support level for the EUR would be 1.3340, and a break there could see renewed selling towards 1.3300. A return back above the 1.3400 level would once again target the 1.3460 area. It will be interesting to see if there are any “pro-EUR” comments made today to reverse the falling EUR trend we are seeing so far this morning.
Expect traders to test the downside of the EUR later today, but I’d be surprised to see the single currency fall much further during the next few sessions ahead of the G20 meetings.
The Bank of Japan left rates unchanged at 0-0.1% as expected, as all members voted unanimously to keep rates the same. In the accompanying statement, the BOJ stated that “Japan’s economy appears to have stopped weakening”. It also said that the pace of export decline has slowed and that the global economy has shown signs of “picking up”. They also said that the Japanese economy has leveled off “more or less” for the time being. The Bank of Japan also pledged to “pursue aggressive monetary easing”, but also said that its aim is to achieve price stability on a sustainable basis, and that they hope to achieve their 2% inflation target as soon as possible.
USD/JPY range overnight showed some early test to the downside, but has since leveled off to the mid 93.50 range as traders await the G20 meeting in Moscow tomorrow and Saturday. There is concern that given the JPY depreciation recently, which has been triggered by the new Abe administration, the G20 will make the JPY move a main focus of the meeting. The reaction earlier this week to the G7 comments regarding the JPY has traders trading cautiously.
Support for USD/JPY remains at 93.25 and 93.00. Resistance is at 93.75 and 94.10.
Have a good day and Happy Valentine’s Day to all!!
Further reading: NZD/USD Breaks to 17 Month High as New Zealand Refrains from Currency Wars
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