- EUR/JPY remains well within ranges this week on Friday just above 135.00 and on track to finish the week flat.
- Nerves ahead of the French election may have prevented the pair from benefiting from a rise in Eurozone yields.
Reports that the ECB has a new crisis tool in the works that would address disorderly movements in bond yields apparently had no lasting impact on the EUR/JPY, which continues to trade within the 134.30-135.70 range this week. Euro traders are likely to be reassured to hear that the ECB is already thinking about how to essentially avoid a repeat of the wild bond market moves seen during the EU debt crisis a decade ago, and this could be supportive on the sidelines for the euro to go ahead amid lower risk premiums.
Currently trading just above 135.00, EUR/JPY looks poised to close the week flat, despite Eurozone yields rising. Thursday’s ECB Minutes were more dovish than expected, contributing along with the dovish Fed minutes and Fed rhetoric to a rise in yields in developed markets (ex Japan). In recent weeks, this has hurt the yen’s appeal. The yen may still be seen by some as oversold due to its recent underperformance, which could partly explain why the EUR/JPY pair failed to rally this week.
But if the trend in the bond markets continues next week, then EUR/JPY could break above its recent range and return to March highs at 137.50. But one event risk that could mar a potential rally, and likely weighed on EUR/JPY this week, is the first round of the French presidential election on Sunday. Far-right, anti-EU candidate Marianne Le Pen has caught up with President Emmanuel Macron in recent weeks and is nearly tied with him.
His election could really shake things up in the European Union and presents a downside risk for the euro. Elsewhere, the ECB will set monetary policy, and since it’s one of those meetings where no new forecasts are released, no major changes in policy are expected. The BoJ governor will appear a few times and will likely reiterate the bank’s ultra-dovish stance.
Technical levels
Source: Fx Street
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