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  • EUR/JPY is offered back to the 200-DMA despute risk-on start to the year.
  • Holiday thin market conditions could be making for breakdowns in correlations. 

EUR/JPY is trading in the consolidation of the December rise through the 200-day moving average where the price was capped in a double-top formation. At the time of writing, the cross is trading at 121.33 within a 10 pip Asian range. 

EUR/JPY was trading heavy overnight despite a risk-on environment with the news that the Chinese central bank had trimmed the amount of cash that lenders must hold in reserve, and signalled continued action in 2020 to reduce borrowing costs for companies.

“The required reserve ratio for commercial lenders will be lowered by 50 basis points from Jan. 6, releasing about 800 billion yuan ($115 billion) of liquidity into the financial system, the People’s Bank of China said on its website Wednesday. The cut aims to help banks reduce their lending rate to businesses, the PBOC said in a separate statement. Currently, the required reserve ratio is 13% for big banks and 11% for smaller ones,” – Bloomberg.

The news lifted both European and US stocks but failed to weigh on the yen. We are still in holiday thin market conditions until after the weekend, so it is not unusual to see correlations breaking down at this time of the year.  

Risk-on start to the year

In other news, following the US-China phase-one deal, the IMF is set to revise its China GDP forecast higher for 2020 to around 6% from 5.8%. “This was the message from the new IMF Director Kristalina Georgieva in an interview with Caixin. Consensus seems to be forming around 6% growth in 2020. The signal coming out of the recent China Economic Work Conference was also that the new growth target for 2020 will be around 6%. It will not be revealed officially, though, until the National People’s Congress starting on 5 March” analysts at Danske Bank explained. 

The news should continue to underpin the upside potential in the cross.

EUR/JPY levels