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Forecast for EURJPY for 27 July 2020

July 27, 2020

July 27, 2020

Forecast for EUR/JPY: Yen regained its authorityDmitri Demidenko

Fundamental forecast for the yen for today

Japanese currency shows heightened sensitivity to cold war

escalation of the United States and China

If in the [EUR/USD][1] pair the intrigue has almost died, in the [EUR/JPY][2] pair it is very much alive. It seemed that the rise of the euro against the yen to the highest level since the beginning of June allowed the bulls to feel comfortable in the longs formed according to my July suggestion [from the level of 122][3], but not so fast! The escalation of the Cold War between the United States and China in the form of the mutual closure of consulates in Houston and Chengdu has sharply increased the demand for safe-haven currencies. And judging by the dynamics of [USD/JPY][2], the Japanese Yen managed to regain the status of the most reliable asset in Forex.

If the main drivers of the strengthening of the euro are divergence in economic growth, diversification of gold and foreign exchange reserves and capital inflows to the securities market of the Old World, the yen draws its strength from trade wars and various other wars. Especially if the battles are related to Asia. In 2018-2019, the US dollar received the main preferences due to the conflict between Washington and Beijing, but in 2020 investors have serious concerns that China will start selling its treasury reserves and investing in the euro and European bonds. The more the White House puts pressure on China, the higher the risks of accelerating this process. Greenback remains out of the game, it’s time to pay attention to the yen.

In my opinion, no matter how much Donald Trump threatens Beijing, he will not want to do what he did last year and the year before last. Increasing import duties. In this situation, US stock indexes will begin to draw the letter W, which in the run-up to the presidential election means only one thing - the defeat of the current government. Thus, the capacity for a correction in [EUR/JPY][2] looks limited. In contrast to the capacity for an upward movement.

The euro enjoys the same trump cards against the yen as it does against the US dollar. The epidemiological situation in Japan leaves much to be desired, which creates the preconditions for divergence in economic growth.

Dynamics of COVID-19 infection rate in Japan and Germany

![LiteForex: Forecast for EURJPY for 27 July 2020][4]

Source: Trading Economics.

In the week of July 13, investors from Japan sold foreign stocks for a record ¥5.9 trillion. They have taken profits after the rapid rebound of the [S&P 500][5] from the March bottom levels and are likely to start investing in European assets after the EU accepts the Franco-German proposal. The capital flow from Asia to Europe has raised the risk of a [EUR/JPY][2] reversal to the highest level since the beginning of 2018.

Reversal risk dynamics for EUR/JPY

![LiteForex: Forecast for EURJPY for 27 July 2020][6]

Source: Bloomberg.

The high likelihood of central banks diversifying their gold and foreign exchange reserves in favour of the euro suggests that the regional monetary unit will not sink deeply even if the US-China trade war resumes. At the same time, the increased activity of commercial traders selling euros in order to hedge positions on their main trades gives reason to expect that the potential for rallies in [EUR/USD][1] and [EUR/JPY][2] is far from being exhausted.

Dynamics of EUR/USD and commercial traders positions

![LiteForex: Forecast for EURJPY for 27 July 2020][7]

Source: Bloomberg.

Hold the [EUR/JPY][2] longs formed [from the level of 122][3] and increase them at the breakout of resistance at 124-124.2 or at the rebound from support levels at 122.6 and 122.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of EURJPY in real time mode

![Forecast for EUR/JPY: Yen regained its authority][10]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  2. my.liteforex.com/trading/chart?symbol=EURJPY
  3. www.liteforex.com/blog/analysts-opinions/yen-got-back-its-favorite-toy/
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