EUR/JPY is starting to bounce; now the question is whether or not we are going to continue?
EUR/JPY
The Euro has fallen a bit during the trading session here on Monday against the Japanese yen, but it has bounced a bit. We're starting to see a little bit of a pushback from the coordinated effort between the Fed and the Bank of Japan to save the Japanese yen, basically.
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Really, what we've got here is a situation where a lot of borrowing in Japanese yen means that a rapidly depreciating yen can cause systemic concerns. It's really not so much about the level of the yen per se as it is the relentless selling of it. Now, this pair is a little bit different because it involves the Euro as opposed to the US dollar, which was the true concern.
The Euro itself is a currency that's somewhat lackluster, but it is starting to see a little bit of benefit from US weakness. Now, having said that, the US numbers today were the manufacturing PMI and the ISM numbers, and they actually came out a little bit ahead, about 1.5 points. So, we've turned around from seeing everything miss for a couple of weeks to suddenly inflation in orders are starting to pick up.
So, what’s going to happen to the US dollar? I suspect interest rates will continue to remain high. So, converting that over here, once the market starts to push back against the Bank of Japan, you have a scenario where the Euro will possibly rise. It probably won't rise as quickly as the US dollar because we also have to worry about inflationary pressures coming out of the Middle East.
Central Bank Interventions Focus on Slowing Trends Rather Than Reversals
The Europeans are going to have a serious problem if the Strait of Hormuz cannot get opened. The Qataris are already buying natural gas from the Americans, meaning that they are, in a roundabout way, importing LNG from the US to the EU in this winter. If that keeps up, it's going to cause a lot of problems in the European Union, and that will show itself here in the Euro.
So, with that being said, if we can recapture the 200-day EMA, it is a potential drift higher. Right now, I think we're in the middle of stabilizing. This is generally the pattern you see after an intervention. You get 1 or 2 really big drops, and then you get a little bit of stabilization like we've seen a couple of times before.
When looked at through the big picture, it's but a blip on the radar. In general, these interventions are all about slowing down something, not changing the trend. EUR/JPY is a pair that a year and a half ago was down here near 155. We find ourselves at 180. Still very bullish, but you're going to have to be patient. You have to enter positions slowly.
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