(Giles Coghlan LLB, Lth, MA – HYCM)
Will the EURJPY pair fall lower now? [Video]
The Euro has seen further weakness so far this week as growing fears emerge over a slowing global economy, Stagflation, growth, and inflation fears all combined to send the USD higher, and that weakens the EURUSD. Furthermore, the last PMI prints from France saw another surprise to the downside with the Final composite PMI reading for June coming in at 52.5 below the lowest expectation of 52.6. The JPY also typically sees gains over the summer months from a seasonal perspective. So, will the EURJPY pair now fall lower on growing concerns over a slowing Eurozone?
Over the last 15 years, the EURJPY pair has fallen 11 times between July 01 and September 08. The largest loss was -8.65% in 2008. The largest gain has been 3.22% in 2020 and the average fall has been -2.04%.
Major trade risks
- If prospects for the eurozone economy pick up then that could invalidate this outlook.
- Any improvement in global sentiment more widely could also invalidate this outlook.
Global growth worries were stoked once again this week as commodities bore the brunt of heavy selling pressure and the USD surged higher. Stagflationary, inflationary, and recession fears continue to dominate investors’ minds. Even oil, which has been so resilient, fell over 10% on Tuesday once the US came back from the July 4th holiday. On a positive note, China showed further signs of economic activity after the lifting of some of the latest COVID restrictions. However, China’s COVID zero policy is a worry to many investors as economic activity can quickly fall on large scale lockdowns if COVID cases surge again.
Other key events from the past week
- Commodity crunch: Sharp falls, July 5: Commodities experienced heavy selling this week as slowing global growth is expected to hinder longer-term demand. Oil, copper, iron ore, and grains all fell lower on global recession fears.
- China recovery: Recovery on track? July 5: The Caixin composite reading surprised to the upside at 55.3 above the 50.0 forecast. This continues to point to a recovery in China’s economic activity and this supports the China 50 view from March.
- AUD: Interest Rate Decision, July 5: The RBA hiked interest rates by 50bps as expected this week. However, on balance, the RBA was slightly less hawkish in its statement and said that inflation levels were higher in other countries.
Key events for the coming week
- NZD: Interest Rate Decision, July 13: The RBNZ meet next week and short-term interest rate (STIR) markets are pricing in a 100% chance of a 50 bps rate hike. STIR markets also see a 70% chance of a larger 75bps rate hike.
- Apple’s Strong Summer? Apple enters its strong seasonal summer period.
- CAD: Interest Rate Decision, July 13: The last BoC meeting saw another hawkish tilt. If the BoC is not as hawkish as the market is expecting watch out for sudden CAD falls in the CADJPY pair.