EUR JPY may be Pair to Watch as Central Banks Move in Opposite Directions

The EUR JPY could be the currency pair to watch over thenext few days as the European Central Bank and the Bank of Japan move inopposite directions. These divergences in central bank policy could trigger asurge in the Euro over the Yen.

The EUR JPY could be the currency pair to watch over thenext few days as the European Central Bank and the Bank of Japan move inopposite directions. These divergences in central bank policy could trigger asurge in the Euro over the Yen.

Fundamentally, the interest rate differential is firmly onthe side of the Euro. The single-currency has also been getting a boost thisweek from comments from German central bank president Axel Weber who said thatthe European Central Bank stands firm on its decision to withdraw stimulus fromthe European financial sector. The hawkish comment from Weber is making theEuro attractive to those traders seeking higher yields.

The Japanese government on the other hand wants to see aweaker Japanese Yen. Earlier in the month the Bank of Japan lowered interestrates in an effort to weaken its currency. This followed an intervention thatfailed to achieve its long term objective. The failure hasn’t stopped the BoJfrom further considering additional intervention which may be the centralreason why traders are expecting another round in the short-run.

The BoJ may be trying to avoid contributing to the excessivevolatility in the Forex markets at this time. In addition, the market has beenin the mood to sell U.S. Dollars which may be the main reason for BoJ’sabsence. Waiting too long however, could end up costing the BoJ a lot of money.

Recently the EUR JPY took out a swing top at 114.73. Thiswas the market’s first attempt to breakout to the upside since the top wasestablished in late July. Although thefirst rally stopped at 115.66, this pair has since regrouped at 112.84 andappears to be setting up for another run at the upside. The longer-term weeklychart indicates a rally to 122.07 is possible over the intermediate term.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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