EUR JPY plunges to approach major support lows after BoJ inaction

Despite last week’s reports that the Bank of Japan (BoJ) was considering potentially more aggressive easing actions in the form of additional stimulus measures, which had led to an immediate drop in the yen and a significant boost for both USD/JPY and EUR/JPY, Japan’s central bank issued its decision on Thursday that it would hold off on any monetary easing. Interest rates remained unchanged and the BoJ was seen as taking the unexpected path of non-action, with nothing in the way of guidance or indication of any future action. This prompted an exceptional surge for the Japanese yen and corresponding plunges for both USD/JPY and EUR/JPY.

This further strengthening of an already soaring yen is undoubtedly problematic for the Bank of Japan, and continues to beg the question of when the central bank will intervene with measures to weaken its currency. But it also presents the equally valid question of whether any intervention measures implemented by the BoJ would actually be effective in stemming yen strength. When the central bank pushed interest rates into negative territory in late January, the yen initially tumbled according to plan. Immediately thereafter, however, the currency embarked on a period of major strengthening for the ensuing months.

In the case of EUR/JPY price action, the rise in the currency pair on reports of potential easing followed by the subsequent plunge on the BoJ’s actual decision is somewhat reminiscent of that rise in late January around the central bank’s foray into negative rates followed by the extended fall that resulted. The only major difference is that the current drop has begun in a significantly more severe manner.

Current yen strength has pushed EUR/JPY back down to re-approach major support around 122.00, which is the level of the recent double-bottom low. This double-bottom developed with the first 122.00-area low occurring in late February and early March, and the second one having been established just last week after hitting a new three-year low. Since mid-year of last year, EUR/JPY has been forming a clearly-defined downtrend with progressively lower highs and lower lows. Any breakdown below the noted 122.00 support level would confirm a continuation of this bearish trend and could likely lead to a significant extension of the downtrend. With any such breakdown, the next major downside target resides at the key 119.00 support level.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.