On Tuesday the European CPI was published. Inflation in the Eurozone is slowing down – the preliminary report for May was +1,2% (the previous report was +1,7%).
Picture 1. Euro area annual inflation
On Thursday the ECB’s meeting will take place. The ECB is going to make an interest rate decision. Analysts expect that the interest rate will remain at the same 0% level. Consequently, we have to listen to the comments from monetary authorities. Positive statements may give the euro a push-up. Otherwise, we will see a downtrend.
The problem the ECB faces is that there are not enough ways to stimulate the economy. At the same time, the biggest economies in the Eurozone are facing global trade risks connected with the China-US relationship. The Chinese economy may start slowing down. For example, the IMF downgraded the Chinese GDP forecast. The new forecast is 6,2% this year and 6% the following year. As a result, we see that more and more European PMIs are heading down.
Meanwhile, the situation in Japan is not looking optimistic either. Japan is closely connected with China. Trading risks might have a strong impact on the JPY.
So now, the question ‘Which country is going to suffer more?’ remains unanswered.
Today we are analyzing EUR/JPY. In the short-term period, we believe that EUR can gain ground against the Japanese currency. Let’s have a short peek at the pair from the technical side.
On the daily time frame, EUR/JPY reached the lowest low at 120,784. After that, it formed the ‘piercing pattern’. The pair is trying to break the trend line. If it breaks this line the next target is 23,6% Fibo correction level. After the breakthrough the next target is 123,085 (38,2% Fibo correction).
Picture 2. EUR/JPY. 1D TF
Summary: Long positions shouol be possible if the d EUR breaks 122,205 up.