EURJPY Vulnerable on German Politics, Risk-Off Sentiment

EURJPY news, prices and analysis:

The EURJPY cross could come under increasing pressure in the coming days.

The Euro is struggling with a fractious political situation in Germany while the Yen is benefiting from risk-averse sentiment in the markets.

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German politics undermine the Euro

Increasing downward pressure on the Euro on the current row over immigration in Germany, coupled with a search for safe havens like the Japanese Yen as sentiment sours in the markets, will likely lead to further downward pressure on the EURJPY cross rate.

On the Euro side of the equation, a dispute over Germany’s migration policy between Chancellor Angela Merkel’s Christian Democratic Union and its long-time partner, Bavaria’s Christian Social Union, remains unresolved after hours of talks Tuesday. Unless Merkel can reach an agreement with the CSU’s hard-line Horst Seehofer, Germany’s Interior Minister, the country’s governing conservative coalition could ultimately be torn apart – leading potentially to a minority government or even fresh Federal elections.

Yen benefits from risk aversion

On the Yen side, the currency is currently benefiting from “risk off” sentiment in the markets as investors switch from assets like stocks to safe havens like the Yen and the Swiss Franc.

That has undermined EURJPY, which has lost ground for two successive days and could have further to fall.

EURJPY Price Chart, Daily Timeframe (Year to Date)

Chart by IG

The EURJPY chart

As the chart above shows, EURJPY is currently close to trendline support and if that breaks there is a possibility that the cross could fall as far as the 124.62 low touched on May 29. Meanwhile, resistance is strong in the 128.60 to 130.29 area from a downward-sloping trendline joining the April-June highs as well as the 20-day, 50-day and 100-day moving averages.

As for confidence, at DailyFX we typically take a contrarian view to crowd sentiment, and retail trader data are currently sending out a warning signal. Traders are net-short, suggesting EURJPY prices may rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that EURJPY may soon move lower despite the fact traders remain net-short.

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— Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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