Jump to content

Why today’s hot European inflation data could dent the Yen

Recommended Posts

Inflation data out of Spain and France highlight concerns that we may soon see European CPI falter around the 6% mark. This helps build a case to look for longs against the Japanese Yen

BG_jpy_yen_japan_usd_dollar_234324234234Source: Bloomberg

 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 28 February 2023 

Spain and France struggle to maintain disinflation path

The latest inflation data out of the eurozone has seen France and Spain post yet another upward move for headline CPI denting hopes that we will see price growth return towards target. Those two nations have been particularly interesting cases of late, with both struggling to maintain the downward trajectory after falling to the 6% region. They are ahead of the curve to a large extent, but the fact that they are seeing two consecutive months of flatlining or rising CPI figures around the 6% mark is a worry. The chart below highlights how US inflation has similarly stalled around this area, with the latest US CPI figure of 6.4% representing a halt to the rapid decline seen over the prior six-months. While we are yet to see the main eurozone inflation figure stall, we are undoubtedly being provided with a warning sign that US and European inflation may struggle to continue its recent decline.


One of the recent benefactors of falling inflation rates throughout Europe and the US has been the Yen, with the continued rise in Japanese CPI making the currency more attractive after a prolonged sell-off. However, that benefit looks to be fading, with the Bank of Japan Governor nominee Ueda continuing to support the ongoing ultra-loose monetary policy. That willingness to maintain rock bottom rates comes in stark contrast to the North American and European focus on tightening monetary policy further in a bid to drive down inflation.

Should we see US and European inflation struggle in its bid to head down towards target, there is a good chance we see the Yen as a target to strengthen against. A risk-off move for markets would bring dollar upside, thus highlighting USDJPY longs as a potential trade for those looking for equity markets to roll over. CADJPY looks another interesting market, with the correlation between CAD and crude meaning that this is a potential market to watch if you are simultaneously expecting a resurgence in crude oil. Meanwhile, European currencies look interesting for those looking for equity markets to remain relatively well bid, with the relatively lofty CPI figures in the UK and eurozone providing a significant degree of pressure on central banks to maintain their hawkish stance.


USD/JPY technical analysis

USD/JPY has pushed up into a fresh two-month high today, following a short retracement yesterday morning. We are clearly within a bullish trend of late, with that pattern likely to persist as we move forward. That bullish view holds unless we see price fall back below the 134.05 support level.

USDJPY-Daily-2023_02_28-12h49.pngSource: ProRealTime

CAD/JPY technical analysis

CAD/JPY has similarly been on the rise of late, with price recovering after a protracted decline that ended at an ascending trendline back in mid-January. The uptrend seen since looks likely to continue apace, with any rebound in crude oil providing further legs to that move. The fact that we have seen the pair do so well in the face of recent crude declines does signal a potential outperformance if oil does turn upwards. A bullish view holds unless price falls back below the 0.9904 swing-low.

CADJPY-Daily-2023_02_28-13h38.pngSource: ProRealTime

EUR/JPY technical analysis

EUR/JPY has seen a sharp rise over the course of the day, with the inflation data seen this morning bringing about an increased feeling that the ECB will likely keep rates higher for longer. The push through 144.16 yesterday brought about a fresh two-month high, with today’s rally furthering that push upwards. This looks likely to represent just the beginning of this move as long as the recent sideways move in Spanish and French inflation spreads to the wider eurozone. With that in mind, a bullish trend holds unless price falls back below the 142.15 swing-low.

EURJPY-Daily-2023_02_28-13h50.pngSource: ProRealTime

GBP/JPY technical analysis

GBP/JPY looks similar to EUR/JPY, with price pushing sharply higher. Much of this comes down to the expectation that what is happening in the US and increasingly the eurozone will ultimately come in the UK. With that in mind, near-term downside for UK inflation will come against a backdrop of expectations that it may well stutter before long. As such, a bullish outlook holds here, with a decline through 161.21 required to negate that positive view.

GBPJPY-Daily-2023_02_28-14h05.pngSource: ProRealTime
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Hi I have Rolls Royce shares in my IG account and realising they do not pay a dividend I saw they issue 'C' Class Shares which need to be redeemed: Payments to shareholders | Rolls-Royce Has anyone any experience of redeeming these or getting information/option requests from IG??? I have been trying for weeks to get information from the Corporate Actions Team, and am still waiting?? 
    • Wheat Elliott Wave Analysis  Function - Trend Mode - Trend Structure - Impulse for wave (A) Position - Wave 5 of  (A) Direction - Wave (B) Details -  Wave 5 of (A) could be completed with an ending diagonal. Pullback for (B) should begin afterwards. Since March 2024, wheat prices have been recovering and extending higher. However, a slowdown and a potential downward correction may occur in the coming days. Despite this, the overall recovery trend is expected to continue afterward. The initial recovery from the low of 523 in March is projected to advance towards the 840-940 range in the medium term. Nevertheless, the long-term bearish trend could resume in the last quarter of the year.   Examining the daily chart, we observe a bearish impulse wave that began at 1364 in March 2022, culminating in an impulse wave that reached 523 in March 2024, thus concluding a two-year sell-off. The subsequent recovery from 523 is nearing the completion of an impulse wave. This suggests that we should anticipate at least an (A)-(B)-(C) bullish correction continuing towards higher price levels, likely in the 842-942 range, which corresponds to the 38.2-50% Fibonacci retracement zone. It is also possible for prices to move even higher. This bullish corrective cycle is projected to extend until the last quarter of the year. For now, the focus should be on the completion of wave (A) and the potential for a retracement in wave (B).     The H4 chart reveals that wave (A) is nearing its completion, forming an ending diagonal for wave 5. A bearish retracement for wave (B) is anticipated to start soon. The prudent strategy at this juncture is to wait for wave (B) to complete before considering long positions in wave (C), provided wave (B) does not breach the 523 low.   In summary, while wheat prices have been on an upward trajectory since March 2024, we may soon experience a short-term correction. However, the broader recovery trend is expected to persist, with prices potentially reaching the 840-940 range. Traders should monitor the progression of wave (A) and prepare for the likely retracement in wave (B). By closely observing the key level of 523, traders can ensure that the bearish wave (B) does not invalidate the recovery trend. If wave (B) remains above this level, the subsequent wave (C) could present a favorable opportunity for long positions, aligning with the projected medium-term bullish correction before the resumption of the long-term bearish trend later in the year. Technical Analyst : Sanmi Adeagbo Source : Tradinglounge.com get trial here!  
    • BlockChainPeople is diving deep into the minds of blockchain users, trying to understand what makes them tick. Interesting stuff. Messari, these crypto detectives uncover hidden data and trends in the crypto market.  Coin Center, policy peeps focused on shaping the future of blockchain regulations.  The Graph, Imagine Google Search, but for everything blockchain – that's The Graph! So, is BlockChainPeople the only way to learn about blockchain? Nope! There's a treasure trove of resources out there waiting to be explored. And it also just got listed on Bitget, spectacular right? What are your thoughts? Are you curious about the psychology of blockchain users, or are you more interested in general blockchain education? Let's hear your thoughts in the comments.
  • Create New...