Forecast for yen price for 7 December 2020

2020-12-07

Euro leaves the yen behind. Forecast as of 07.12.2020Dmitri Demidenko

The growth of the global risk appetite pressed down the US dollar and all safe-havens, including the yen. The euro buyers remember old advantages, and the euro is ahead of the main rivals. How will the ECB react? Let us discuss this question and make up the [EURJPY][1] trading plan.

Weekly yen fundamental analysis

It is pleasant when the forecasts for three months come true after two or three weeks. The [EURJPY][1] pair has reached the target at 126.4, which I indicated in [late November][2], amid the increase in global risk appetite and aggressive sell-offs of safe-havens and funding currencies. High demand for emerging markets’ assets encourages carry traders. However, the euro is growing faster than the EM currencies, which looks surprising at first. The risks of a double-dip recession are high; the ECB expresses discontent with the regional currency strengthening, it will try to set the uptrend back.

Both in technical and fundamental analysis, there are patterns widely used by traders. A decline in the coronavirus cases in Europe, hopes for rapid economic recovery after the lockdown, and the change in the EU stance, which previously focused on fiscal consolidation, and is now ready to spend the money, became the main drivers of the [EURUSD][3] and [EURJPY][1] rallies in June-August. The current situation is similar, and investors are afraid of missing out.

Dynamics of COVID-19 cases in Europe and USA

Source : Nordea markets

If in the spring the idea of the € 750 billion Rescue Fund and the related issue of EU common bonds was shocking and made it possible to talk about a worthy alternative to Treasuries, now at the EU summit on December 10-11, the issue of the viability of this project will be decided. Hungary and Poland are opposed, but Brussels has a plan B. If Budapest and Warsaw do not want to participate in the program, they can do without them. According to the President of the European Commission, Ursula von der Leyen, it is the money that the EU borrows from future generations and wants to use not only for recovery but also for building a strong economy. More digital, more green, more livable.

Europe is turning into a spender because of the pandemic, which is confirmed by the words of Angela Merkel that Germany was able to invest large sums in 2020 and will be able to do so in 2021, as it has successfully managed funds in recent years. The Chancellor noted the country’s lowest debt in the G7. The fiscal stimulus is a powerful driver of economic growth, the divergence in which played into the hands of the [EURJPY][1] bulls in July-August and will do so in the first half of 2021. Another thing is that the euro is really growing too fast, and not only against the US dollar but also against other currencies, which the ECB may not like.

Dynamics of EURUSD and trade-weighted EUR

Source : Nordea Markets

Weekly [EURJPY][1] trading plan

I believe Christine Lagarde and other ECB governors could slow down the [EURJPY][1] uptrend, but the ECB can’t turn it down. It is still relevant to buy the euro against the yen on the price fall and hold the trades up to the target at 128.5[ indicated earlier][2]. Yen is weak now due to the general weakness of safe-haven assets due to the increased demand for carry trades and capital repatriation by Japanese investors. The [Nikkei 225][4] seems less likely to drop than the [S&P 500][5], since two whales in the Japanese stock market, BoJ, and GPIF, appeared due to ETFs’ purchases by the Bank of Japan.

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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