EUR/JPY: Euro extends decline as Eurozone growth concerns mount
Fawad Razaqzada December 14, 2018 12:38 PM
Yesterday’s slightly more dovish ECB statement and press conference saw the euro fall. And there has been further follow-through on the back of today's publication of disappointing manufacturing and services sector surveys from the Eurozone, underscoring the ECB President Mario Draghi’s "increasing caution" outlook on the economy and highlight euro's vulnerability. Bizarrely, though, ECB's Nowotny has stated today that risks to growth are “broadly balanced,” despite the recent sell-off in equity markets suggesting otherwise. In fact, the ECB said in its policy statement just yesterday that the “balance of risks [to the growth outlook] is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.” So, judging by that and today’s disappointing Eurozone data, you do have to wonder how Mr Nowotny could justify his assessment.
French economic activity shrinks: PMI
Today’s economic surveys from the eurozone have helped to compound fears over the health of the Eurozone economy. According to Markit’s Purchasing Managers' Indices (PMIs), France’s private sector fell into contraction for the first time since 2016. The nation’s manufacturing PMI printed 49.7, down from 50.8 recorded in November, while its services sector PMI performed even worse, plunging to 49.6 from 55.1 the month before. This was the first time in two and a half years that economic activity in France has contracted, with a series of protests hitting business confidence. The situation in Germany wasn’t too great either. The nation’s manufacturing PMI slipped to 51.5, a 33-month low, from 51.8 previously, while the services sector gauge also weakened slightly. Unsurprisingly, the weakness was reflected across the eurozone, whose composite index dropped to 51.3 from 52.7 in November as both manufacturing and services growth slowed down. All of today’s PMIs were below analysts’ expectations.
EUR/JPY in lower half of range, looking heavy
With the euro falling on weak data and Japanese yen hanging around amid ongoing volatility in the stock markets and ahead of the Bank of Japan’s policy decision next week, the EUR/JPY is again finding itself in the lower half of the tight range it has been stuck inside for several weeks. In light of the above developments, could we now see a breakdown? A potential break below the trend line around the 128.00 support level could see rates break below the November low at 127.50. If there’s acceptance below this level then the liquidity below the October low at 126.60 would become the next bearish target, potentially followed by the May low at 124.60 next. However, all bearish bets would be off if the EUR/JPY rallies now and goes above the most recent short-term high at 130.15. Short-term potential resistance levels come in at 128.70, 129.00 and 129.40, levels that were formerly support and/or resistance.
Source: TradingView and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.