Euro Up on Strong French Preliminary CPI Data

Euro Up on Strong French Preliminary CPI Data
April 3, 2018

Between March 19th and 23rd, the EURJPY pair declined from 131.70 to 128.90. The rate hike and the upbeat GDP forecast issued by the US Federal Reserve was the prime reason for the Euro dollar’s decline. During the same period, the yen strengthened due to the uncertainty created by the Sino-US trade war concerns. However, the EURJPY pair recovered last Monday after Jens Weidmann, the president of Germany’s central bank, forecasted an end to the bond purchase program in the next few months. We expect the EURJPY pair, which is currently trading at 130.30, to rise further due to reasons given below.

In Japan, the resurfaced Moritomo scandal has put the Prime Minister Shinzo Abe in trouble. The scandal is about a piece of land sold at a dirt cheap price to a friend of Abe. The individual, who operates an educational institution named Moritomo Gakuen, wants to build a school on the land. In 2017, Abe and his wife were cleared of any wrongdoing. However, the scandal resurfaced after news emerged that crucial documents used in the investigation were found to have been fudged by a ministry of finance official, who later committed suicide out of shame. Protestors, including opposition lawmakers, have demanded the resignation of Abe. The political uncertainty is expected to weaken the yen.

Last week, without any kind of prior information, North Korean chief Kim Jong-un visited China and met President Xi Jinping. Next month, Kim is expected to meet South Korean President Moon Jae-in. Trump is also expected to meet Kim sometime this year. The changing political landscape has removed tensions in the Korean peninsula. As the tensions between the US and North Korea simmer down, the yen, a safe haven currency, is also turning weak. In the Eurozone, the upbeat economic data is expected to strengthen the Euro dollar.

According to Insee (Institut national de la statistique et des etudes economiques), the French consumer spending rose sharply by 2.4% m-o-m in February, after a two-month decline (−1.9% in January and −1.2% in December). Analysts had expected consumer spending to increase by 2.2%. An increase in heating expenses, driven by a fall in temperatures by more than two degrees below seasonal norms, contributed to a recovery in consumption. Furthermore, food purchases and clothing expenses also increased considerably. Energy consumption surged 8.9% m-o-m in February, after a sharp decline in January (6.4%).

The French preliminary Consumer Price Index (CPI) indicates that inflation rose 1% m-o-m in March, versus analysts expectations of a 0.8% rise. During the previous month, the French preliminary CPI remained unchanged. An acceleration in prices of services, food products, and tobacco have contributed to the rise in inflation. While energy prices increased steeply, compared to the previous month, the price of manufactured product edged down. The above details suggest that the Euro is fundamentally poised to move up against the yen.

Technically, the EURJPY pair has received support at 129.90, as shown in the price chart below. Furthermore, the stochastic oscillator is rising towards the bullish zone. Therefore, we anticipate the current uptrend to continue in the days ahead.

EURJPY - Technical Analysis - 3rd April 2018

Using the analysis, we wish to generate returns on our surplus funds, which we can afford to lose. In the Forex market, we are planning to open a long position in the EURJPY pair near 130.30, with a stop loss order below 129.30. We would sell our long position when the pair reaches 132.80.

From one of our binary brokers, we would purchase a call option contract when the currency cross trades near 130.30 in the spot Forex market. We would invest only if the broker agrees to offer a contract, which remains active for a period of one week.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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