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EUR/JPY Hits Fresh 6-Year Highs as Abe Seems Shoe in for PM Again
Posted On 05 Dec 2014
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Both the EUR/JPY and the USD/JPY hit fresh trend highs on expectations that Abe will win next week’s election, which would give Abenomics policies a fresh mandate, generating headwinds for the Japanese currency. The Bundesbank slashed growth prospects for the Euro but this did not damper the positive enthusiasm for the EUR/JPY cross.
The failure of the Democrat Party of Japan to mount a serious challenge to Abe, despite the quite divided public support for Abenomics, is leading to surveys that the LDP and Komeito coalition will retain the super-majority they now enjoy, which helped push the yen lower.
On Thursday both the ECB and BoE left policy unchanged, as expected, which helped the Euro hold its ground. The ECB opened the door very wide to QE early next year, although Draghi stressed that that doesn’t necessarily mean January, and that sovereign bond purchases are only one option among different possible versions of QE. The wording on the ECB’s balance sheet expansion was also strengthened although none of these decisions seem to have been taken unanimously, with some executive board members apparently objecting.
Still, the times when the hawks at the Bundesbank had a significant input on ECB decisions are clearly over and the doves have taken over. Markets were nevertheless disappointed that there was no firm commitment to QE and peripheral stock markets headed south, while yields moved higher on Draghi’s comments, helping the Euro gain ground especially against the yen.
The EUR/JPY hit highs not seen since July 2008. Momentum surged as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. Additionally, the RSI moved higher with price action reflecting accelerating positive momentum, but the current print of 73 is above the overbought trigger level of 70 and could foreshadow a correction.
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