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EUR/JPY at 132.20: dropping further below key hourly MAs on a weak euro

  • EUR/JPY back below the key hourly MAs.
  • EUR still soggy after the NFP's on rate divergence expectations between ECB/Fed; (US-Europe policy divergence a thing)

Currently, EUR/JPY is trading at 132.25, down -0.12% on the day, having posted a daily high at 133.15 and low at 132.16.EUR/JPY has taken a hit on the offer with EUR/USD dropping from the 1.16 handle to score a fresh low of 1.1580 with eyes for the 27th Oct low at 1.1574. This, in turn, has pulled the cross lower below hourly MAs on euro weakness.

The euro has been soggy throughout the European sessions and still wears the resurgence in the dollar post-NFPs and indeed the dovish taper sentiment from the ECB. As per data, the EZ PMI was mixed while  PPI was firmer along with solid sentiment data. However, the main weight on the euro stays with the divergence between the ECB and Fed.

Powell to continue increasing rates in 2018, keeping US-Europe policy divergence a thing

Powell was confirmed as the new Fed chair for 2018, Feb 3rd who will take over from Yellen and is predicted to continue along the same path as Yellen in respect to interest rates. Powell expressed how satisfied he was with the return towards the Fed's target of 2% inflation which implies that more rate hikes are on the cards for 2018. The ECB, on the other hand, will trim QE as expected, but left the end date open-ended and confirmed to markets that rates are to stay at present levels for an extended time period; Draghi was not confident on wages or inflation, and that message contrasts sharply with that of the Fed, keeping the US-Europe policy divergence a thing.

BOJ's Kuroda - Current policy is sufficient to hit 2 percent price target

Meanwhile, the BoJ remains dovish and there is an appetite for the 115 handle following the move overnight that took the yen down to the lowest levels since March this year, scoring a low of 114.73 vs the greenback on Kuroda's "sticking to policy" comments. 

EUR/JPY levels

Analysts at Commerzbank noted that EUR/JPY last week failed to close below the 131.75/68 supports and slowly inched higher to end the week:

"So far, it has not done enough to negate the potential top. Intraday rallies are indicated to terminate circa 133.13/133.30 and while capped here, attention remains on key support, which remains 131.75/68. We await a confirming close below here to complete the potential top pattern. This is the location of last month’s lows. 

A close below 131.68 would then target the mid-September low at 130.64, the September low at 129.40 and the August low at 127.57. We do not have a strong bias here the market remains well supported by the cloud 132.41/130.98."

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