Trading the EURJPY Pair This Week

Currency trading is subject to wild variations, but within these seesaw price movements are definite trends. This is evident in the above graphic which represents the strong appreciation of the EUR/JPY pair since August 2016. Note that there are multiple successive sessions of currency appreciations for the EUR, followed by reversals where the JPY has enjoyed successive sessions of gains. This is common with currency pairs trading, but the general trend for this pair is bullish.

(Click on image to enlarge)

Consider 2 technical indicators – the 50-day moving average of 122 and the 200-day moving average of 117.81. Presently, the EUR/JPY pair is trading beneath its 50-day moving average, but significantly higher than its 200-day moving average. How are we supposed to interpret such muddled data? The answer it seems is found in the fundamentals of the broader European economy, and the Japanese economy.

What Should Binary Options Traders Look for When Trading the EUR/JPY Pair?

Currency traders, analysts and economists have long touted the recovery taking place in the Eurozone. However, the most recent data releases indicate anything but. GDP growth in the Eurozone grew by 0.4% in Q4 2016, as opposed to the forecast figure of 0.5%. Of course, the reason for this is weaker than expected performance in Germany. Analysts were anticipating German GDP growth to increase by 0.5%, but it grew by just 0.4% – in sync with the overall performance of the Eurozone. Analysts were also expecting industrial production in the EU to decrease by just 1.4%, but it plunged 1.6%.

This is a significant negative surprise, and it has contributed to weakness in the EUR/JPY currency pair of late. Should we be concerned with Q4 2016 figures, when we are already well into Q1 2017? Currency traders don’t believe that we should focus too much on all the data given that the recent performance of the EU economy is stronger. As a case in point, inflation data is positive in the Eurozone, and on track for solid growth in 2017. However, Mario Draghi of the European Central Bank remains steadfast in his determination not to tighten monetary policy. There are several things that we can certainly bank on happening if the ECB does any of the following:

• If the ECB raises interest rates, the EUR will rise and the EUR/JPY pair will be bullish. Of course, call options on the pair will be warranted.
• If the ECB decides to taper its quantitative easing program, the EUR will rise and the EUR/JPY pair will be bullish. Naturally, call options will be the best course of action.

However, geopolitical uncertainty across Europe is creating an atmosphere conducive to EUR weakness. This is true with ongoing Brexit discussions, and the upcoming elections in Germany. There also elections taking place in the Netherlands and in France. However, one should not naturally assume that the election of conservatives will be bad for the EUR, as evidenced by the strength that Trump’s election victory had on the USD.

What about Japan? What Should Binary Options Traders Be Looking for?

The EUR is likely to be a much stronger currency against weaker rival such as the JPY than the USD. The reason for this is that the Fed is already raising interest rates, and upward momentum for the USD is rather limited. However, a reversal in policy by the ECB will have dramatic consequences for the EUR/JPY pair. Long-term, the EUR/JPY pair is significantly bullish. The reason we can say this with confidence is the demographics of Japan.

The country is facing a shortage of workers, given its aging workforce and shrinking economy. This is true because Japan is facing deflation with negative interest rates and economic contraction. We can expect the Bank of Japan to react accordingly: monetary easing, the preponderance of negative interest rates, and a slew of policies designed to accelerate the velocity flow of money through the economy. Such measures will invariably strengthen the EUR/JPY pair. As a binary options trader, the writing is on the wall.