October 28, 2021 15:01:29

The yen is at the bottom of the G10 currency pile this month. Hit by the broadly more positive risk tone, the dovish BoJ did nothing today to change the view that they are in any rush to tighten policy any time soon. In contrast, the ECB has at least “woken up to the inflation reality” as one investment bank neatly put it after this afternoon’s meeting.

It seems the energy crisis is here to stay which will widen the Japanese trade deficit, with the country being a net importer of energy. We also need to add some political risk into the mix now with the Japanese general election next Sunday. Polling suggests the ruling LDP may lose its overall majority as new PM Kishida has weak public support.

EUR/JPY dip buyers seen around 132

This cross fell to lows in the summer around 127.93 and again in late September. Since then, prices saw ten straight days of gains making a cycle high at 133.48. Overbought conditions have eased with minor risk-off trading helping the yen last week.

But buyers have defended the Fib level (61.8%) of the June to summer move at 1.3176. Healthy consolidation is welcome after the sharp surge higher, and prices have stayed above 132.

We note that the 50-day SMA is about to cross above the 200-day SMA. This is a basic technical indicator and is generally regarded as a bullish sign, although the timing can be tricky with such events.

A bullish breakout eyes up the next Fib (78.6%) at 132.79 ahead of this month’s high. The June top is at 134.12. If we lose support at 131.76, next support sits at the 50% mark around 131.02.