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EUR/JPY: Bears may cheer drop in the EZ inflation expectations

2018-3-21 10:56:56Trading Strategies
EUR/JPY: Bears may cheer drop in the EZ inflation expectations

The common currency may remain under pressure against its Japanese counterpart, courtesy of falling inflation expectations.


Currently, the Eurozone inflation expectations, as measured by the 5y5y swaps, stands at 1.68 percent- the lowest level since November. The decline will likely keep the bond yields across the Eurozone under pressure.


Meanwhile, the 10-year German-Japan government bond yield spread continues to drop in the Euro-negative manner. As of writing, the spread stands at 54 basis points vs. recent high of 70 basis points seen on  Feb. 15.


So, the EUR/JPY risks falling below 130.00 in the short-run. The sell-off will likely gather pace if the Fed sounds hawkish, driving the treasury yields higher and equities lower (positive for Yen).  


EUR/JPY Technical Levels


A close above the 200-day MA of 131.74 would restore bullish view and allow a stronger rally to 132.44 (March 13 high) and 133.14 (50-day MA). On the downside, breach of support at 130.34 (previous day's low) could yield a sell-off to 129.61 (Monday's low) and 129.35 (March 5 low).