Search ForexCrunch
  • EUR/JPY hangs in the balance of risk appetite and the Fed.  
  • Technically,  119.91 78.6% Fibonacci retracement is a key level on the downside.

EUR/JPY has caught a bid from 121.31 and is knocking on the doors of the 5th July highs as the yen weakens towards June highs in USD/JPY. The sentiment around the dollar has improved following a vastly better than anticipated Nonfarm Payrolls release and implications for the Federal Reserve interest rate decision this month.  

Prior to the US jobs data, recent movements in risk addest, such as the Yen, had centred on the G20 summit. USD/JPY initially fell to a low of 106.8 in the lead-up before rising back to a month high of 108.5 after the favourable outcome. The cross is strongly correlated to the global equities, especially that of Japanese, European and US markets. However, looking ahead, market risk sentiment is set to remain as the Yen’s predominant driver and the backdrop is not particularly favourable as the Trump administration continues to tighten the screws on the Iranian economy, as well as the Eurozone and China’s over trade policy.    

For today, the cross rose despite a mixed close in European markets:

  • German DAX, -0.2%
  • Italy’s FTSE MIB, -0.04%
  • Portugal PSI 20, -0.35%
  • France’s CAC, -0.1%
  • UK’s FTSE, +0.01%
  • Spain’s Ibex, -0.6%

The US markets still have a number of hours to play for, but things are not so rosy here with the DJIA and S&P 500 both off around    -0.5%. Meanwhile, this week’s focus will be on US CPI and Federal Reserve governor, Powell’s, two-day testimony along with the FOMC Minutes which may well reveal some clarity of the Federal Reserve’s thinking as a prelude to this month Federal Open Market Committee’s meeting. A positive outcome for the Dollar will likely weigh further on the Yen and EUR, so the cross should be hung in the balance of whichever is favoured least of the two; Likely being the euro considering the continued uncertainties and risk-off sentiment, thus, spelling out the downside for the cross.  

EUR/JPY  levels

Analysts at Commerzbank noted that EUR/JPY remains above the 2019 uptrend line at 121.24 and the 120.79 June low:

“It should fail here and then head to the 119.91 78.6% Fibonacci retracement. This is the last defence for the 117.85 January spike low. Resistance is offered by the 123.34/75 May 21, June and current July highs. This resistance area maintains an overall negative bias and protects 125.52, the 78.6% retracement and the 200-day ma at 125.63.”