Updated: Mar 28, 2021
Europe is looking at generating a strong vaccine roll out which will help the EU recover faster than expected. The most interesting figures from European Commission show a projected growth of 3.8% moving into 2021 and 2022.
This bullish European sentiment is a great sign for a potential bullish move in the EURJPY exchange rate.
Below is a full summary of the forex fundamental, technical and sentiment analysis to give you some free insights into the markets.
Logikfx Fundamental Analysis Summary
The Logikfx Technology summary page helps our traders and me focus on what matters!
What this tool does is give a holistic view of a currency pair, providing a full fundamental overview on whether an exchange rate looks bullish/ bearish.
In other words it tells us whether an economic is growing or contracting against another.
Think of it like a tug of war between two countries and their currency, who is getting stronger and weaker.
What we can make out from the analysis is that for EURJPY the Macro Currency Strength Meter is suggesting a bullish economic outlook in Europe against Japan and thus EURJPY is looking bullish.
Gross Domestic Product Differentials
The Gross domestic product growth rate differentials showed a strong recover in 2021 or at least forecast to be one. GDP growth rates are expected this year to grow over 4% in the EU, slightly lower in Japan.
However, as you saw in the technology summary the year of 2022 still shows growth but expected to fall from 2021. This is quite bearish as it shows the change is dipping and might slow down.
Keep an eye on this as the IMF may change forecasts if EU sees a stronger than expected recovery to not only the pandemic but political issues like Brexit.
Import/Export Market Analysis - Logikfx
Europe the land of the BMW, Ferrari and the VW golf. Car exports are huge there's no denying it.
Look out the window today and you'll probably spot a European car.
Volkswagen has had incredible performance since the initial dip in March 2020, prices have recovered and even reached highs not seen since 2017.
The overall correlation analysis shows over a 60% correlation with EURJPY, the growth is exponential and over 1 standard deviation from standard numbers...BULLISH SIGNS!
Volkswagen agrees with a bullish outlook on EURJPY
On the opposite side of the world there's a big competitor for Volkswagen...
That's the big boy themselves Toyota.
Japan made cars are popular around the world for being reliable, cost effective and sometimes even making it into big movies.
Similar to Volkswagen there's a strong positive correlation between Toyota's growth and the EURJPY exchange rate.
The recent growth in the car industry is both surprising and interesting considering most people are told to work from home and there's been less cars on the road since 2020...
That being said the growth is bullish for EURJPY without a doubt.
Toyota agrees with a bullish outlook on EURJPY
Finally, we're going to analyse a commodity in which Japan imports a lot... that is crude oil.
Crude oil is a key component in Japan's imports. We've analysed the relationship and found a negative correlation just over 15% over the past 10 years.
Generally, we can see as oil prices rise in yellow the EURJPY exchange rate falls and vice versa.
Recently, Crude oil has broken its highs reached before the pandemic... strange considering half the world is still locked down.
However, this bullish rise in oil prices is contradicting our idea on EURJPY.
Crude oil does not agree with a bullish outlook on EURJPY
Interest Rate Differentials - Logikfx
The super interesting fact about interest rates is that most monetary bodies including the ECB and Bank of Japan have discussed negative interest rates.
Bank of Japan has already imposed them on their country since 2016.
What does negative interest rates mean? Generally... it means lending is incentivised.
Banks can lend at a super low if not negative rates meaning they can borrow money and give them in the forms of mortgages etc at better rates to make money.
This in term also leads to more spending in households and also businesses (business loans).
This step I use the interest rate forex indicator to make sure interest rate money flow is in favour of the idea.
What we can see is that Europe's interest rates are hovering just over 0 very low, but Japan's interest rates are negative.
This creates a positive differential in favour of Europe as investors see that their cash earns more money there in comparison to Japan.
Interest Rates agrees with a bullish outlook on EURJPY
Stock Market Analysis (STOXX600)
The stock market is the final part!
What we can tell from the stock market analysis is simply, it's not ready.
We can see that the STOXX600 priced in JPY has fallen hard since March 2020.
Has it recovered? Nope.
This is a bearish sign to say that European markets and people are getting poorer in comparison to Japan.
Overall...bearish signs from the stock market.
Keep an eye on this as we'll future growth is a nice bullish indicator if it continues this way.
Commitment of Traders - Hedge Fund Sentiment
Now that we have a fundamental outlook that EURJPY looks bullish we want to make sure the market is not against us.
To make sure it's not we have to make sure the market sentiment of big money is with us and not against but also make sure price action agrees too.
The first step is to check the Commitment of traders analysis tool we have at Logikfx.
We can now compare Euro positions vs JPY positions and their sentiment relatively.
What the chart is saying is that overall the difference between the two sentiments is looking bullish in favour of Euro. GREAT!
JPY sell positions are increasing in comparison to Euro positions.
Therefore, the market could be prepping for a larger upside move.
Hedge fund positions agrees with a bullish outlook on EURJPY
Technical Analysis - Price Trend
Finally... we're at the price analysis.
Simply put I don't put much emphasis on this at all.
However, this might be a good time to see if our timing on the idea is correct.
What I've identified area key areas of support which could lead to following the upside trend.
The past 3 months of price action has been bullish with no signs of stopping.
What we might see is a pullback and a further push on the upside.
Overall... looks bullish on price too.
One word of warning would be that it's starting to reach levels of resistance, the higher the price climbs may see sellers coming in to the markets to reach that equilibrium.
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