JPY, EUR: Motion Scenarios

After the convincing victory of the Shinzo Abe coalition, the USD/JPY currency pain has conquered the level of 114. Market participants took this event as a guarantee of the continuation of the reforms that had been initiated earlier. The ultra-soft monetary policy will continue and, most likely, the way for further easing of the yen is open.

“Abeconomy” gives the first signs of entering the curve of growth after many years of stagnation, and the confidence of Japanese businesses in the success of the policy pursued by the Japanese Bank seems to be steadily growing. However, a huge debt, which is equal to double the GDP, and a rapidly aging population, are factors hampering the more intensive recovery of the Japanese economy. This difficult task will have to be undertaken by the winning coalition of Shinzo Abe, via bolder reforms so that the momentum of economic growth continues in the future.

As for the exchange rate, the further easing of the Japanese currency may be prevented by the geopolitical situation, in which case the yen has a good chance to return to the level of 111. However, all other things being equal, do not expect a sharp weakening of the yen. Most likely, the way upwards will be fairly smooth, with good corrective movements, because in addition to the Japanese currency in the pair USD/JPY there is the American dollar, from which, in the near future, we should expect interesting news.

From the statistical data today, the index of industrial activity in Germany will be published. A great figure is expected, but it will only provide short-term support for the European currency, since market participants are currently more interested in information on the normalization of monetary policy by the ECB.

The ECB meeting, which will be held on October 26, is unlikely to bring many surprises to market participants. The fact is that the political situation in the European Union is far from safe and tranquil. Catalonia, Italy’s parliamentary elections – against this background, Mario Draghi will most likely try to insert “dovish” comments into his speech, despite the fact that the issue of reducing the QE program has already been resolved, and now it remains to decide on the size and timing. The reaction of market participants in the EUR/USD pair to certain ECB decisions will be considered through the prism of events in the US, taking into account progress on tax reform and price movement in the US debt market.

Most likely, a serious normalization of the monetary policy by the ECB, which is currently expected by market participants in the near future, will not happen, and in the main currency pair, we should expect increased volatility with local mini-trends lasting several days, with subsequent consolidation and correction. We wish you profitable trading!

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