EUR/JPY Weekly Outlook - May 6, 2013

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By: DailyForex

Last week, ECB's Governing Council did reduce refinancing rates from 0.75% to 0.5% while deposit rates remain untouched at 0.0%. However, ECB President Mario Draghi left room for negative rates by saying "we stand ready to act if needed."

ECB Council member Ewald Nowotny later confirmed the Board's latest stance about its open minded approach regarding the likelihood of lower deposit rates in the near term.

While negative rates may be on the table soon, it will take a rapidly deteriorating Eurozone economy for the policy rate to be dropped even lower than it is presently.

Poor economic data no doubt gave way to the new rate policy especially as zone's unemployment rate rose from 12.0% in January and February to 12.1% in March.

The monetary policy meeting held by Bank of Japan on April 29 did not come with any sursrises as there was no mention of additional easing.

The previous meeting which took place earlier in the month had featured another round of substantial easing but this time, the Bank's board members did give reviewed macroeconomic forecasts of its objectives.

Inflation target for 2014 fiscal year was reviewed from 0.9% the previous year to 1.4%; although the consumption tax hike was not included in the revision.

The following year 2015 has an inflation forecast of 1.9% y/y as the BoJ keeps up its aggressive pursuit of its 2% inflation target within a 2-year time-frame as always emphasized by Governor Haruhiko Kuroda.

Many Economists have reservations about the government's outlook. However, the administration still demonstrates a very strong commitment to its set objectives.

On the 4-hourly chart, EURJPY is a medium-term buy above 131.10 for a target at 150.0% fib extension at 137.10 but a retracement is a sell for an exit at 125.10. The latter is more likely though.

EUR/JPY weekly may 6, 2013

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