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EUR/JPY Breaks to a New Monthly High

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EUR/JPY Breaks to a New Monthly High

The yen was one of the worst performing currencies during the past week, losing significant ground to the Euro, as the BOJ finished its two day meeting, continuing to discuss its asset purchase program. The goal of the BOJ is to increase asset prices and a declining yen has helped the Nikkei. Yield differential continued to favor the Euro over the yen, along with robust data released out of Germany on Friday.

The IFO institute’s business climate index released on Friday increased to its highest since April 2012, rising to 109.3 this month from 107.4 in October and topping consensus of 107.7. The current-situation reading also rose, as did the future expectations.

Rhetoric that was thrown about this week shows that the ECB is concerned about the direction of monetary conditions in the region. Inflation is low and may even now overstate the pressures as some tax increases or administered price increases may be inflating the official measures. Lending to the private sector continues to contract which will eventually erode growth.

The EURJPY currency pair broke out above resistance near a horizontal trend line at 135.50. The next level of target resistance is 139 which were the monthly highs seen in 2009. Short term support on the currency pair is seen near the 10-day moving average near 134.90.

Momentum on the currency pair is strong with the MACD (moving average convergence divergence) index printing in positive territory after generating a buy signal last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The relative strength index (RSI) which is an oscillator that measures overbought and oversold levels, is printing near 63, which is the upper end of the neutral range.

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