Euro major beneficiary of rising German bond yields
Fawad Razaqzada February 1, 2018 6:21 PM
The EUR/JPY is often considered to be a barometer for risk appetite. However it is not displaying those characteristics at all at the moment.
The EUR/JPY is often considered to be a barometer for risk appetite. However it is not displaying those characteristics at all at the moment. Today’s 1.4% drop in the German DAX index should have weighed heavily on this pair, but didn’t. This is a classic example of correlating markets going their separate ways. In this particular case, the culprit is the growing yield differential between German and Japanese debt. As German bunds sold off, so too did the stock markets, but the resulting higher yields supported the euro. As a result, all euro crosses rallied, including the EUR/JPY.
German bond yields have been rising sharply in recent days amid growing speculation that the European Central Bank may start tightening its policy in the coming months owing to an improving Eurozone economy and expectations of higher rates of inflation. In contrast to the ECB, the Bank of Japan continues to remain one of the most dovish central banks out there. The BOJ is aiming to create inflation by holding down bond yields, in order to encourage people to invest in the stock markets, which in turn is hoped to boost incomes from dividends and so on. The long and short of it is that money goes where interest rates are expected to rise. And right now, that is the Eurozone. This is why the euro is finding support.
As a result of today’s rally, the EUR/JPY has climbed to a fresh high for the year, achieving its best level since October 2015. The path of least resistance is clearly to the upside, so one should expect the dips to be supported until there is a break in market structure of higher highs and higher lows. Clearly a move back below 134.85, which was the point of origin of this latest rally, would be a bearish development. Until and unless that happens, the higher probability setups would be the bullish ones. With that in mind, the key support to watch now is at 136.00 on the daily time frame. This year’s earlier high of 136.60ish is also an important level to watch for possible signs of support around. Meanwhile, Fibonacci extension levels at 137.60 (127.2%) and 138.80 (161.8%) are among the bullish objectives to watch on the upside, along with round figures such as 137.00, 138.00 and so on.
Source: eSignal and FOREX.com.
Source: TradingView.com 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.
Your form is being processed.