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  • EUR/JPY tracing risk sentiment and global equities, with poor EZ data so far, ignored.  
  • EUR/JPY remains capped by the 123.80/50%, but eyes to  119.91 78.6% Fibonacci retracement.

EUR/JPY has been one to watch considering the lead up to the various geopolitical events of late and central bank meetings. The cross is tracking the stock markets and each change in sentiment regarding the geopolitical and economic backdrop. It is playing out its role of following the money with the tight correlation that it has with the DAX and risk appetite.  

On Thursday, overnight, European stocks traded slightly higher in the footsteps of the record highs reached by Wall Street’s main market gauges.’ Dovish’ remarks from central bankers across the Continent were also playing their part, helping the DAX higher by 0.1% to 12,631.21. EUR/JPY was a touch bid overnight as  strong sentiment for a new cycle of easing lifts all ships. Also, news of a new dovish head to the ECB to replace Draghi at the end of October, (subject to parliamentary confirmation) has been playing its part.

The nomination of Christine Madeleine Odette Lagarde is a French lawyer and politician serving as Managing Director and Chairwoman of the International Monetary Fund since 2011, seems to be a political move given her background, but she has voiced her support of Draghi’s work and has been an advocate for the easy monetary policy all along.  

As for the EZ economy, the service sector has been a support for some form of stability, keeping the Gross Domestic Product from contracting. However, today’s retail sales data falling by 0.3% month-on-month in May will be alarming to the ECB which adds to the case for the bank to act which is already on standby. Next week will see May’s industrial production figures for the eurozone and that is going to be a major event and maybe the straw that breaks the camel’s back.  

EUR/JPY levels

Analysts at Commerzbank noted that EUR/JPY remains capped by the 123.80/50% retracement and focus is on the 121.19 2019 uptrend 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 123.75/80, May 21 high and Fibonacci retracement and this maintains an overall negative bias and protects 125.52 78.6% retracement and the 200-day ma at 125.74.”