EUR/JPY Pushes Lower as Euro Bulls Take a Breather

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Principal Points

• The bulls take a breather as the zone tries to recover
• EUR trades lower with some exceptions
• EU leaders decide on a seven-year budget

EUR Bulls Take a Breather and the Zone Tries to Recover

The EUR/JPY pair is trading to the downside so far this week as euro bulls are taking a breather from the recent strong rally. The euro has put a lot of effort to recover since the pandemic lows in March and most recently broke some important resistance levels against its counterparts. The EUR/JPY has moved quite substantially since its lowest levels reached in March as the pair has gained over 10% March-to-date. Currently, the EUR/JPY rate is hovering around 126.00 with a low of 125.86. The Euro reached a 3-month high against the Japanese yen on Friday, peaking at 126.68.

The EUR/JPY exchange rate is on the losing side this week. The trend turned at the inflection point of a double top when the rate hit 126.68 on Friday. Not being able to convincingly overcome the level of 126.46 reached on Sep 10, the euro bears took over and currently have the upper hand in the movement of the price.

EUR Trades Lower With Some Exceptions

What we are seeing so far into the week is a consolidation of the euro across the board as it’s trading lower against most of the other currencies. With the exception of the Great British pound. The EUR/USD, for one, peaked at 1.2177 on Friday, a high last reached in April 2018. Since Friday, the pair has given some of the gains and is now trading around the 1.2000 mark.

The US dollar has been flashing signs of weakness for the last few months which was welcomed by the euro. The EUR/GBP pair, however, has been searching for a direction for the most part of November as the price dynamics were heavily affected by the Brexit events. It has to be noted that the sterling is now a risky and volatile currency as Brexit talks are in the end game with key divergences still present. For that reason, Prime Minister Boris Johnson is set to travel to Brussels today to continue the talks with European Commission President Ursula von der Leyen.

EU Leaders Decide on a Seven-Year Budget

On the European front, the last EU leaders meeting of 2020 is set to happen on Thursday and Friday. The ECB will proceed with their regular policy statement and interest rate decision on Thursday while European leaders gather in Brussels to discuss the next seven-year budget and the coronavirus relief package. Both are currently blocked by the veto of Hungary and Poland. The EU summit will have to focus its attention on the Brexit talks and the veto. Even though EU officials have stated they do not want these two events to overshadow the agenda for Thursday and Friday.

Expectations and Positive Effects of a Cheaper Euro

The consolidation in the euro could be a healthy correction in the single European currency. As traders and investors are expecting the ECB to announce it will expand its €1.35tn emergency asset purchase program by adding another €500bn while keeping borrowing costs extremely low. Another reason for the positive effect of a cheaper Euro is that European companies are able to compete better abroad as exports outside the eurozone are cheaper. ECB officials have signaled they are concerned about the gains in the euro, which are partly a reflection of broad dollar weakness.

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