EUR/JPY hits seven-week high of 124.29, what’s next?

The EUR/JPY march towards dominance in the foreign exchange markets has got faster over the course of the last few days.

The single European currency found itself in high demand after heads of government across the bloc agreed on a stimulus deal worth around €750bn to combat the economic effects of the coronavirus pandemic.

This fuelled its position significantly – especially in the pair it shares with the Japanese yen.

This pair reached 124.29 at one stage on 22^nd July, suggesting that there was significant appetite for the relative risk of the euro.

According to strategists, the euro now has a chance of reaching 125.80 in this pair.

This monthly resistance level reflects a high point it reached in May 2017.

However, there is no guarantee that it will get this far.

The Japanese yen is well known for rising during times of significant economic and political turbulence.

The ongoing problems between the US and China could benefit the yen, putting the euro at risk here.

If traders continue to feel that the state of the Eurozone economy is sound thanks to the stimulus package, however, the yen may not be able to stage a comeback.

The economic calendar, meanwhile, offers some clues as to where the euro might go next.

Tuesday morning will see an unemployment survey from Spain covering Q2 2020.

This is widely forecast by analysts to have a negative outcome, and there is a prediction in place that the metric will rise from 14.41% – where it was last recorded – to 16.7%.

Fears around the health of the labour market in southern European states is long-held, and if a result like this appears, it could suggest to euro traders that the Eurozone will not be able to weather the remaining coronavirus storm easily.

This metric is due out at 7am GMT.

On Wednesday, meanwhile, a non-monetary policy meeting of the European Central Bank will take place at 7am GMT.

This will be preceded by an import price index for June out of Germany, which is the largest economy in the Eurozone.

This will be out at 6am GMT, and is expected to show a month-on-month change from 0.3% to 1.4%.

Thursday, however, will be the key day for the markets.

The European Central Bank will release its Economic Bulletin at 8am GMT, a document that is likely to influence euro traders.

Consumer confidence figures for July from across the euro bloc will be released at 9am GMT.

This is expected to show no change from its previous position of -15.

When it comes to the overall European unemployment rate for June, meanwhile, the indicator is expected to show a change from 7.4% to 7.7%.

This in particular may be seen as a sign of economic trouble for the bloc.

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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