EUR/JPY nears 2020 highs – are the bulls ready to show?

Although it has shown itself to be a bit of a slow starter over the last few months, things appear to be beginning to heat up for the EUR/JPY.

This was particularly true in recent weeks, where the EUR/JPY hit weekly lows of 124.30 in light of the continued selling pressure hitting the Japanese currency.

Although it was not a stellar month for the JPY overall, the EUR/JPY did manage to bounce around between 124.10 and 125.80, which seems to be where resistance was holding out.

Also contributing to what seems to be a bullish trend in the JPY is the news that the dollar’s recovery seems to be running out of steam, particularly with the details of the much-awaited stimulus package apparently stalled for the time being.

Coming off the back of weekly highs of 125.59, as reported in last week’s forex news, a surge to a daily high of almost 126.00 seems to indicate the emergence of a bullish trend, though the bulls did pull back slightly having hit this.

With a view to the rest of August, some market analysts are suggesting that we could see the EUR/JPY stretch to 127.55, which was the November 2018 low.

According to the forex trading analysts over at DailyFX, there are two possible paths here.

Firstly, a break below 123.79 could send the EUR/JPY spiralling down to 122.84 – or, secondly, a break above 126.08 could spark a rally towards 127.55.

Japan’s macroeconomic calendar didn’t offer much strong hope as of this Wednesday, as government officials published the July Money Supply M2+CD data (a measure of all the JPY in current circulation), which indicated an increase to 7.9% from 7.2% the previous month.

The M2+CD is an important market indicator that tends to give forex trading market watchers an indication of the state of the economy in terms of inflation, and a positive trend is considered good for the overall economy.

With all that said, it remains to be seen whether the release of this forex news will have much of a long-term general impact on the JPY.

There is still quite a lot of uncertainty surrounding the JPY and its relationship to other currencies, particularly the USD, with the impact of this on the economy still unknown.

While the USD/JPY has found some support in recent weeks between 105.00 and 106.50, the impact of events such as the much-awaited stimulus package and the possibility of trade talks remains to be seen.

It seems, then, that this uncertainty could see a route towards ‘safe-haven’ currencies such as the USD/JPY, the EUR/JPY, and the GBP/JPY.

With so much volatility in the markets, safe-haven currencies like these are a great way of mitigating your risk exposure.

If the last few weeks are anything to go by, there is still quite a lot of market volatility lurking in the mist as the full economic impact of the COVID-19 pandemic begins to reveal itself.

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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