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  • EUR/JPY is playing a key roll in EUR/USD’s support with Wall Street’s benchmarks chipping away at the upside.  
  • EUR/USD came within a pip of the 2018 low but buyers have emerged guarding the level.  

EUR/USD has been on the backfoot since a resurgence in the greenback, strong consumer confidence numbers, healthy ADP data and weak EZ GDP combined into month-end flows that weighed on the pair.  

The US job market continues hot. Private payrolls are not the whole story for NFP but they are the largest and most productive part. A strong lead for Friday’s BLS report – Joseph Trevisani, Senior Analyst at FXStreet explained after the ADP showed that the private sector rose by 227K in September to surpass the market expectation of 218K today.

At the same time, we have Turkey risk rearing its ugly head again that lead to a spike in USD/TRY:

“A few hours after Turkey’s central bank published its inflation outlook which envisages consumer prices remaining well above the official target at least until 2020, Treasury and Finance Minister Albayrak announced a wide range of tax cuts.
While this is an attempt to ease the burden on battered Turkish households, the announcement reignited the upside pressure on USD/TRY and EUR/TRY.

Such a reaction implies that the market could be concerned that the central bank may not be sufficiently supported by the administration in its efforts to rein in inflation.

After all, the purpose of lower taxes is to revive consumption, which is inflationary,”

analysts at Rabobank explained.  

EUR/JPY finding support from a strong correction on Wall Street

EUR/JPY, is, however, finding support from a strong correction on Wall Street. Investors have been enthused by prospects of a trade war truce following bullish remarks from President Donald Trump at the start of this week. Neither economy would fare particularly well and the latest evidence from China’s data proves so. The drop in the official manufacturing PMI to 50.2 in Oct from 50.8 in September was well below even lowest Reuters poll forecast. More concerning, new export orders shrank for a fifth month to 46.9 from 48.0, almost certainly due to higher tariffs.  

However, Chinese benchmarks actually firmed on the data as investors figured that the Xi has little choice, no matter how politically damaging it may be, to make a truce with Trump at November’s Summit in Buenos Aires and protect the Chinese economy from worsening ramifications of a prolonged trade war.  To the contrary, Bloomberg reported that the U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war, three people familiar with the matter said.

However, markets are optimistic, perhaps prematurely, but for the meanwhile, the DJIA is up 1.61%, the NASDAQ +2.52% and the S&P 500 +1.77%. While US stocks continue their quest towards critical 61.8% Fibos across the spectrum, EUR/JPY can support EUR/USD in the absence of heightened geopolitical risks or worsening European data, especially with the BoJ as dovish as it is due to such stubbornly low wage inflation – (The BoJ was forced to admit that its 2% CPI inflation target is unlikely to be hit until early 2021).

EUR/JPY levels

Analysts at Commerzbank note that EUR/JPY continues to reverse from the 78.6% retracement at 126.66:

” In order to restore upside pressure, rallies will need to regain the 130.20 22nd October high and preferably the 200 day ma at 130.40. Rallies will find initial resistance at 130.20/40, the 22nd October high and 200 day ma. These guard 133.13/48, the highs since April. Above 133.48 lies the 134.27 1979-2018 downtrend line. Still further up sit the 137.51 2018 high and the 137.87 2008-2018 resistance line.”