- The EUR / JPY approached November highs at 125.14 and has since reversed sharply below the 125.00 level.
- However, the pair is still trading with reasonable gains on the day, as the JPY generally ends a bad month.
The EUR/JPY it was within 1 pip of the equal monthly highs set on November 9 immediately after the Pfizer / BioNtech announcement at 125.14. However, in these last hours, the pair reversed sharply and has now fallen below 125.00 to trade at 124.60.
End-of-month flows dominate, but economic fundamentals prevail as the week progresses
End-of-the-month flows, difficult to predict, have been dominant in financial markets today; many banks were suggesting the sale of USD, which was initially seen before 16:00 GMT. Meanwhile, US stocks fell shortly after opening, amid a series of high-profile institutions touting sell signals. The S&P 500 is currently trading 0.8% lower on the day, but still holding gains of more than 10% for the month.
The euro and the yen have also been affected by the flows at the end of the month. But with this short-lived phenomenon now largely over, focus should return to the usual themes that drive the two currencies; risk appetite, central banks and economic fundamentals.
In particular, JPY traders will be on the lookout for any signs that US states are moving further into lockdown, something that could support the JPY against its G10 peers, including the EUR. Also, the Japanese manufacturing and services PMIs for November are released on Tuesday and Thursday respectively, which should attract attention, as should the BoJ’s speeches by Amamiya and Suzuki.
Meanwhile, EUR traders are expecting a strong dose of relaxation from the ECB on December 16 and will seek further confirmation of it from ECB President Christine Lagarde (speaking Tuesday) and the ECB’s chief economist. , Lane (speaking Wednesday). Meanwhile, November consumer price inflation is likely to be very mild and release on Wednesday, while traders will also be keeping an eye on euro zone retail sales on Thursday.
Double top for EUR / JPY?
With the EUR / JPY strongly rejecting resistance at the previous monthly high at 125.14, a double top has been placed. If this turns out to be a significant double top, eyes will be on support just below the 124.00 level (26 Nov lows) and then the pair’s 21- and 50-day moving averages just above 123.50. Below the 123.00 level, there is also strong support (lows on October 2 and 15 and lows on November 18, 19 and 20).
However, it might not be current to argue that the EUR / JPY is a double top given that it has actually tested this region four times in the last two months; in mid-October, the pair rejected the 125.00 level twice. Therefore, this could indicate that a convincing breakout to the upside of the 125.00 level is looming, which would open the door for a move up and towards the summer highs between 126.50-127.00.
4 hour chart
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