Soft Industrial Growth and Unemployment Drag Euro Downwards

Soft Industrial Growth and Unemployment Drag Euro Downwards

The rise of the US dollar in the last two months of 2016 – following the victory of Donald Trump in the US Presidential election and the Fed’s outlook of three rate hikes in 2017 – pushed the Japanese Yen lower, thereby relieving pressure on the Bank of Japan which was seen as helpless by investors and speculators. Simultaneously, the Yen also weakened against other rivals such as the Euro. Since November 15th, the EURJPY pair has appreciated from 116.60 to a high of 124.08.

The signs of recovery in the Euro zone also aided the EURJPY’s uptrend. However, the economic data released earlier this week indicates that the Euro zone still has plenty of issues to resolve.
According to Destatis, the German industrial production grew 0.4% m-o-m in November 2016. This compares with an upwardly revised 0.5% m-o-m growth in October. The reported industrial production was also below analysts’ estimates of 0.7% growth.

Elsewhere in Europe, the Italian agency Istat announced that the jobless rate increased to 11.9% in November 2016, from an upwardly revised 11.8% in the previous month. It is the highest recorded seasonally adjusted unemployment rate since June 2015. Youth unemployment hit a high of 39.4%, the highest level since October 2015. The growing unemployment rate is a cause of concern for the EU.

Positive economic data came out of Japan in the last week of December 2016. The consumer prices increased 0.5% y-o-y in November 2016, the highest since May 2015. In the previous month, the inflation rate increased 0.1%.

Similarly, the country reported a trade surplus of 153 billion Yen in November, compared with a deficit of 387 billion Yen in the similar period last year. The Bank of Japan is not expected to undertake further policy easing because of the trade surplus. On the other hand, fundamentally, the weak economic data is expected to keep the Euro under pressure against the Yen in the short-term.

Technically, the stochastic oscillator indicates an extremely overbought scenario. The EURJPY pair is also facing resistance at 123.10. Thus, a correction can be expected in the cross.

EURJPY - Technical Analysis - 11th January 2016

A Forex trader can go short in the EURJPY pair near 122.40 levels, with a target price of 120.20. To prevent large losses from wrong forecast, a stop loss order can be placed above 123.60.

A binary trader can create a similar setup by purchasing a put option contract or its equivalent (low or below option). The contract can be picked up for investment when the currency pair trades near 122.40. The trader should also choose a contract validity period of one week.

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