- EUR/JPY remains well within this week’s ranges on Friday just above 135.00 and on course to end the week flat.
- Pre-French election nerves perhaps prevented the pair from benefitting from a rise in Eurozone yields.
Reports that the ECB has a new crisis tool in the works that would address disorderly moves in bond yields did not seemingly have a lasting impact on EUR/JPY, which continues to trade within this week’s 134.30-135.70ish ranges. Euro traders are likely to find it reassuring to hear the ECB is already thinking about how to essentially prevent a repeat of the wild bond market moves seen during the EU debt crisis a decade ago, and this might be supportive at the margin for the euro going forward amid lower risk premia.
At current levels just above 135.00, EUR/JPY looks set to close out the week flat, despite the fact that Eurozone yields rose. Thursday’s ECB minutes were more hawkish than expected, contributing alongside hawkish Fed minutes and Fed rhetoric to a rise in yields across developed (non-Japan) markets. In recent weeks, this has hurt the appeal of the yen. Some may still view the yen as oversold given its recent underperformance, which could partly explain why EUR/JPY didn’t rally this week.
But if the trend in bond markets continues next week, then EUR/JPY might be headed above its recent range and back towards March highs in the 137.00s. But one risk event that could spoil and potential rally, and likely weighed on EUR/JPY this week, is the first round of the French Presidential election on Sunday. Far-right, anti-EU candidate Marianne Le Pen has caught up to President Emmanuel Macron in recent weeks and is nearly tied with him.
Her election could really stir things up in the European Union and presents a downside risk for the euro. Elsewhere, the ECB will be setting monetary policy and given it is one of those meetings where new forecasts are not released, no major policy changes are expected. The Governor of the BoJ will be appearing a few times and will likely reiterate the bank’s ultra-dovish stance.