A1 Trading Company

June 15, 2023

Trading EUR & JPY Amid Bank Rates

Frank Cabibi

Amidst a wild trading week, there is still much more to unpack today and for the rest of the week. After the Fed's recent rate pause, the ECB had other plans for their currency. Meanwhile, the BOJ is gearing for a volatile day before the bank rates and statements later today. Here is how we're trading with the sentiment and data for the EUR & JPY currencies.

EdgeFinder Analysis

On the EdgeFinder, this pair is neutral. Weighed down by the recent downtrend, the score remains just under a buy. However, the ECB just raised its rates from 3.75% to 4% as sentiment revolves around the fact rates may stay higher for longer. Despite the looming recession fears in the European economies, target inflation is still in the ECB's sights.

Meanwhile, the RBNZ has the highest rates on the EdgeFinder at 5.5%. Seems hawkish, but they are not projected to go any further according to the central bank officials who have hinted that they will focus on pausing or cutting from now on.

Gold makes a comeback on the 1D timeframe. After breaking under a long term trend line, the metal paired those losses today on strong sentiment against the recent rate news. Investors may be shrugging off the concerns that the Fed may want to hike somewhere down the line, if Core PPI and Core CPI don't come down more.

Price is retesting the rising trend line as resistance now, but today's strong momentum may be enough to break higher. If today's candle ends similar to the way it looks now, we'll be looking at a strong rejection from the lows on a bullish hammer candle.

An interesting case here for CHFJPY which has been ranked as a strong buy for some time now. It is now the second-most shorted pair on the retail side, but price continues to push higher. This is likely due to the dovish sentiment around the yen and the BOJ which we have discussed in earlier articles. Meanwhile, CHF hovers in the positive range on interest rates.

CHFJPY has seasonality, trend reading, and every else on its side except for GDP growth. As Japan's economy bustles, the yen fades in value due to ultra-loose monetary policy. Although the yen is so oversold at this point, it will continue to likely crumble if we see a dovish BOJ statement today.

Retail Sentiment

Same story as always: retail trades against the most bullish and bearish pairs on the market. Just from looking at this chart, we can probably assume that EURGBP is steeply down, while AUDJPY is moving higher on the long term timeframe. Sure enough, I just looked at those charts and yes, that's exactly what's happening.

Smart Money Spotlight

CHFJPY bullishness is reinforced by this one chart on the Smart Money Tracker page. As you can see on the bottom chart, the bias towards the upside has been increasing for the past four weeks now. At the same time, so has price. On the top chart, there is a steeper decrease in the number of long contracts going into the yen (the red line) versus CHF (the blue line).

Fundamental Spotlight

The Central Bank Tracker shows one more hike before it sticks at this level indefinitely. As a result, inflation projections are pointing downward. So, over time prices should drop, but the ECB worries that it will also cause a recession. EUR is in a tough spot in term of monetary policy, but overall, it's a hawkish-leaning currency.

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