Forecast for yen price for 4 November 2020

2020-11-04

Yen places its opponent in check. Analysis as of 04.11.2020Dmitri Demidenko

Europe’s and Asia’s different epidemiological states, recession depths, and monetary policies create the necessary prerequisites for a downtrend in the [EURJPY][1]. How deep can a fall be? Let’s find it out and make a trading plan.

Monthly fundamental forecast for yen

While the greenback is waiting for the election’s final results, trading currency cross rates may be worth considering. The US political landscape will undoubtedly affect most currencies, but the pandemic remains a weightier factor in Forex pricing in the medium and long terms. The strategies based on the divergence in epidemiological situations, economic growth, and monetary policies continue to yield profits. Another confirmation is the realization of the targets at 122.9 and 121.8 set [in mid-October][2] for shorts in the [EURJPY][1].

COVID-19 hit Japan less than the eurozone: in terms of Coronavirus cases per 100,000, Japan is one of the countries that tackle the pandemic most efficiently, along with China, Taiwan, and South Korea. The situation in Belgium, Spain, and Italy looks gloomy, on the contrary.

Recession and pandemic

Source: Financial Times.

As a result, Europe is forced to introduce new restrictions, which will cut the eurozone’s Q4 GDP by 2.3%, according to Financial Times. Thus, a double recession is certainly in the air. The organization of economic development and cooperation expects that the currency block’s economy will reduce 7.9% in 2020, i.e., twice as much as during the previous global crisis. I dare suppose that the second wave may even downgrade those forecasts.

The BoJ expects that the Japanese GDP will fall by 5.5% by the end of the ²⁰²⁰⁄₂₀₂₁ fiscal year in March. Japan’s economic loss doesn’t look as significant as the eurozone’s since the efficiency of anti-pandemic measures in Asia is higher than in Europe.

GDP dynamics

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Source: Financial Times.

Christine Lagarde is sure the ECB will expand a monetary stimulus package in December as the coronavirus is spreading fast across Europe. Haruhiko Kuroda and his colleagues are ready to take action if necessary, but the BoJ’s Head has not seen such a necessity so far. Both regulators got caught in a liquidity trap where softer monetary policies do not have any positive effect. Both agree to play currency wars, but the ECB’s intentions are manifest, and the euro is therefore falling faster than other G10 currencies.

Monthly trading plan for [ EURJPY][1]

The situation may seriously change soon: vaccines’ development will support the global economic recovery and international trade, which is positive news for the euro. The European countries will lift restrictions, and Christine Lagarde’s hints about QE expansion will remain mere hints. According to Governor of the Austrian National Bank Robert Holzmann, there is no point in increasing buy volumes as the inflation won’t speed up anyway. Instead, a change in the QE program’s structure must be in focus.

This scenario looks too optimistic, though. But why not hope for the best and use the [EURJPY][1]’s drawdown to 120.65 for long-term buying?

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Price chart of EURJPY in real time mode

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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