EUR/JPY: Bears lurking as expectations for dovish ECB hat up

• EUR/JPY a balancing act over 116.36 that guards the 114.86 2017 low.
• ECB, trade wars and the Yen all to play a bearish part in EUR/JPY’s downside.  

EUR/JPY is currently trading at 117.31, down -0.39% at the time of writing having travelled from a high of 117.85 to a low of 117.21.  Risk appetite is minimal at best at times of corrections considering the concerns over the Federal Reserve, trade wars and a global recession on the cards, perhaps emanating from the eurozone which brings the European Central Bank to the fore and the topic of discussion.  

A telltale sign that volatility and risk-off markets are here to stay are the levels for which Gold is able to hold onto despite a robust Dollar which is not attracting safe-haven flows, which it typically does across a basket of currencies at times of uncertainty. Also, looking to the USD/JPY, it had dropped to a low of 104.45 in the turmoil last week, albeit recovering sharply in hectic markets on Monday before losing traction again and running back to a low of 105.59 today – Indeed, the Yen is the market’s preferred go-to place in the FX at times of risk-off.  

When turning to the eurozone, we are seeing print after print that points towards an imminent recession. The market is pricing n the  ECB to respond in kind with easing measures.  

According to analysts at ING Bank, the euro is likely to stay soft on the back of i) ECB easing, ii) No Deal Brexit fears culminating in October and iii) uncertain Italian politics. EUR/USD should continue to threaten a break under 1.10. When you couple such an outlook with strength in the yen and weakness in global equities, then its sensible to expect a general theme of weakness for EUR/JPY looking ahead.  

EUR/JPY levels

On a technical level, for the near term at least, analysts at Commerzbank have noted that the EUR/JPY’s low at 116.57 was not confirmed by the daily RSI,:

“We have a second 13 count and TD support at 116.36 and we suspect the down move is over for now.   Initial resistance is the 20-day ma at 118.38 and the 120.06 25th July low. Key short term resistance is the 55-day ma and the 3-month downtrend at 120.45/65.”

The downside is open below  116.36

“TD support at 116.36 guards the 114.86 2017 low. The break lower last week saw the market erode a 2012-2019 support line and this leaves a negative bias entrenched while below the downtrend,” analysts at Commerzbank warned.