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Analysis of the Euro/Yen (EUR/JPY) price

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When deciding to trade in the foreign exchange market, it is essential to understand the mechanisms that make one currency more attractive than another in a cross. Among the most important factors are of course the interest rates of these currencies, which it is essential to know how to analyse in order to determine whether the price of the cross concerned will rise or fall. This is also the case for the EUR/JPY.  

Analysis N°1

Firstly, we must of course be interested in the monetary policy of the euro zone. In this sense, we will follow closely the various publications of the ECB or European Central Bank, which is the only body able to influence this currency by manipulating its interest rate. The ECB meets regularly in order to decide whether or not to modify this rate so as to allow banks to borrow currencies more or less easily. Meetings of the European Central Bank are of course held outside of these scheduled dates, particularly in the event of a crisis or a complex period for the Eurozone economy, and these meetings are always followed by a press conference that is very well attended by investors in the foreign exchange market.

Analysis N°2

With regards to the Yen now, monetary policy is also something to keep an eye on in order to do this fundamental analysis of the EUR/JPY. Here, the Japanese central bank is called the BOJ or Bank Of Japan and it is this bank that decides on the policy to be carried out regarding the Japanese currency. Amongst the events to follow here are of course also the interest rate releases and the BOJ minutes. Remember that the Yen is one of the major safe haven currencies along with the Swiss Franc and the US Dollar. As a result, this central bank's communications are particularly closely followed by investors in the foreign exchange market and can cause volatile movements. Historically, the BOJ has already introduced negative interest rates in early 2016 with a rate of -0.10%.

Analysis N°3

Of course, we will also follow with great interest other publications, economic this time, about these two major economies, namely the euro zone and Japan. Several official figures published regularly are worth remembering because they reflect the economic health of these two zones. These include figures on the unemployment rate, trade balance, inflation rate, GDP growth rates, retail sales, durable goods orders and industrial orders, business sentiment and consumer confidence.

Analysis N°4

As regards the Japanese economy more specifically, and given that Japan generates a large part of its income from abroad, the level of exports and its evolution will also be monitored.

Analysis N°5

The economic and trade policies of the Eurozone and Japan are also factors to be monitored as they can influence international trade and therefore the demand for foreign exchange in these two currencies.

Analysis N°6

Finally, we will of course also take into account any geopolitical conflicts or exceptional events that may influence these economies and the exchange of currencies in these two zones.

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Presentation

The currency pair EUR/JPY represents the exchange rate of one euro in yen. It therefore gives the value of one euro in yen.

This currency pair is important as it accounts for nearly 3% of all transactions made each day in the foreign exchange market. It is also the 7th most traded currency pair in the world.

It has to be said that trading the EUR/JPY is popular as this is one of the most volatile crosses on the market. This is probably why the EUR/JPY cross lends itself particularly well to scalping. Indeed, its historical volatility has reached in the past almost 210 pips.

 

The Yen's safe haven status against the Euro:

Before you start trading the EUR/JPY currency cross, you should keep in mind that the yen is a currency that has long been considered a safe haven. But what does this really mean?

When we talk about a safe haven currency in the foreign exchange market, we are primarily talking about the currency of a country with a particularly stable and relatively strong economy over time. This is of course the case with Japan, which has repeatedly demonstrated its ability to pull itself out of major crises in the past. Of course, the fact that the yen is a currency that is widely used in international trade is another element that makes it a safe haven.

But the yen is not just any safe haven currency but is probably the most interesting one at the moment. Indeed, compared to other safe-haven currencies such as the Swiss franc or gold, the yen has a significant advantage in terms of debt. This argument might seem strange when you consider that Japan is actually the most indebted country in the world with a debt level that reaches and even exceeds 225% of the national GDP. The fact is that, compared to other countries, more than 90% of Japan's debt is held by the country itself and by the Japanese people, whereas in the eurozone, for example, less than 50% of the debt is held by the government. The fact that Japan is the majority owner of its debt means that it is not, or is only marginally, affected by the vagaries of the financial markets as regards its refinancing, even though the world's public debt has reached record levels and the markets are increasingly influential at all levels. This specificity of Japan is unique in the world and in the developed countries and leads to an additional interest for this currency from investors.

Another element that makes the yen a low risk asset is the extremely large savings reserves that Japan has accumulated over time. These savings have been built up thanks to the fact that Japan is still one of the world's largest exporting countries.

Indeed, due to these specific characteristics of Japan, the yen is a currency that is often favored by traders in times of major economic crisis as shown on the historical charts of the EUR/JPY or USD/JPY. For example, in 2008, as the subprime crisis was in full swing and the economic and financial crisis began, the yen was gaining interest and was buying heavily in the foreign exchange market. The same will happen in 2011 in the middle of the debt crisis. Of course, each time, when the situation improves and the crisis ends, we see a return to a decline in this value.

The relationship between the value of the yen and the health of the world economy is a two-way street, as the significant appreciation of the currency can be interpreted as a sign of a new period of crisis in the world.

 

The influence of the Japanese economy on the EUR/JPY rate :

If, as we have just seen with the safe haven status of the Yen, the EUR/JPY cross can be strongly influenced by the global economic health, it is also under the direct influence of the Japanese economy.

Indeed, Japan is currently the fourth largest exporter in the world, with exports of more than 700 billion dollars per year. Among the most profitable and preponderant fields of activity in Japan is the automotive sector, which generates nearly 20% of its exports with both vehicles and spare parts, as well as the computer and technology sector, which represents nearly 7% of the country's exports.

The observation of the evolution of the trade balance of this country is also interesting since it shows a sawtooth progression and is sometimes positive and sometimes negative. This variation of specific form is explained by the fact that if Japan exports a lot of goods, it also imports a lot and in particular raw materials such as oil which represents more than 30% of the total imports of this country.

It is also important to know that Japan's economy also depends largely on the health of the Yen. Indeed, when the value of the yen tends to fall on the foreign exchange market, exports are favored which increases Japan's international competitiveness and thus tends to appreciate again. Conversely, a yen that increases in value will eventually fall as it penalizes the country's growth by making it less competitive.

However, it is worth noting that the Japanese economy has not shown much variation for several decades now due to the persistent deflation. However, the Japanese National Bank or BoJ is trying to reverse this trend by carrying out quantitative easing, which you should also take into account in your analysis.

In conclusion of this article dedicated to the EUR/JPY, we can therefore note that the factors that influence this parity are numerous and varied. We will take into account the economic and political data of the Eurozone, but also the safe haven status of the yen and the economic cycles in Japan. But you should also follow closely all announcements and decisions made by the ECB and BoJ central banks that have a direct influence on this cross. Finally, we will not neglect the technical analysis which is essential to detect the strength and possible duration of a trend and which complements your fundamental analysis of these two currencies.

 

EUR/JPY Technical Analysis

Let's move on to the technical analysis of the EUR/JPY cross, which is the second essential analysis in the context of any investment and therefore here of an investment in the foreign exchange market. Unlike the fundamental analysis, this analysis does not take into account events and various publications but is based solely on the study of current and historical stock market charts of this value.

Technical analysis uses a variety of indicators and for the EUR/JPY currency pair, the most commonly used indicators include pivot points, the RSI indicator and Bollinger Bands.

It is also possible to perform this analysis using major psychological levels such as supports and resistances and pivot points. Analysts usually study these indicators with Japanese candlestick charts in order to know the opening and closing price levels.

The RSI indicator is one of the most popular indicators and is used to warn of an over-trading or under-trading of the EUR/JPY. It is often considered as a trend reversal indicator.

We will not go into further detail about the other indicators but we advise you to take a close interest in them and especially to learn how to interpret them correctly. Indeed, most Forex charts now offer to calculate these indicators and display them live. However, it is still necessary to have an excellent knowledge of the markets and technical analysis to interpret these indicators correctly.

But technical analysis also requires other knowledge and in particular experience in using the charts themselves. Indeed, these charts are both innovative and complex but also fully customizable. It is therefore necessary to know how to manipulate and set them according to the strategy established and the trading horizon of each.

It should also be remembered that while technical analysis is based on precise mathematical and statistical calculations, it does not provide any certainty regarding future trends in the EUR/JPY. The Forex market, like all other markets, is an unpredictable market and there is currently no method of predicting the price of this exchange rate.

It is also necessary to multiply the indicators and the types of analyses in order to refine the signals as much as possible, in particular by carrying out a fundamental analysis in addition to the technical analysis of this value.

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