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Euro Ukraine Cease Fire Rally Overtaken by Yen Intervention. Where to for EUR/JPY?

Euro Ukraine Cease Fire Rally Overtaken by Yen Intervention. Where to for EUR/JPY?

Daniel McCarthy, Strategist

Euro, EUR/JPY, Japanese Yen, BoJ, Treasury Curve, Fed - Talking Points

  • Euro finds footing but Yen gets central bank boost on bond intervention
  • Equities enjoy ceasefire uptick, but scepticism and behind-the-curve Fed lurk
  • If this is the beginning of BoJ intervention, where does that leave EUR/JPY?

The Euro saw solid gains overnight in the fallout from a possible ceasefire in the Ukraine war. European equities were boosted, and their futures have been steady in Asian trade today.

The optimism also lifted Wall Street and APAC equities mostly followed suit, with the exception of Japan.

The Japanese Yen was the standout asset today. The Bank of Japan (BoJ) kicked the rally off after they intervened early in the Japanese government bond (JGB) market across many segments of the curve.

This led to speculation of further action from authorities there taking some action to reduce Yen volatility.

Later in the day, BoJ Governor Haruhiko Kurado said that he had met with Prime Minster Fumio Kishida. He claimed that the Yen had weakened on rising energy prices and expressed a desire for stable movement in currencies that reflects economic fundamentals.

These comments don’t say much, but they have signalled the beginning of jawboning intervention, something that Japanese authorities are well-versed in.

In the US session, the US 2-10 year Treasury curve inverted. Every recession in the US in living memory has seen inversion in that part of the curve in the lead up. This led to some commentary painting the latest equity rally as a bear market trap.

Former New York Fed President Bill Dudley remarked that the Fed has now made a recession inevitable. He went on to say that to get inflation down you need to get the unemployment rate up and a recession cannot be avoided.

Fed speakers Bostic and Harker also hit the wires with hawkish comments.

The Australian budget did little to move the Aussie with most aspects already leaked. Crude oil had a rally in Asia on scepticism of the success of the cease fire in Ukraine. After a blip lower overnight, gold remains steady near US$ 1,925 an ounce.

There is a plethora of European CPI data due for release today ahead of a revised set of fourth-quarter US GDP numbers, as well as the ADP gauge of private-sector hiring. In addition, there will be many speakers from the ECB, BoE and the Fed crossing the wires.

The full economic calendar can be viewed here.

EUR/JPY Technical Analysis

On Monday, EUR/JPY stalled at the February 2018 high of 137.501 and this level may continue to offer resistance.

A close below the 5-day simple moving average (SMA) , currently at 135.249, could signal a pause in bullish short-term momentum.

The 10-day SMA at 133.774 sits just above 2 potential support levels at 133.481 and 133.152.

EURJPY CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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