EUR/JPY: ECB delivers no surprises, markets unimpressed

 
In reaction to the European Central Bank’s policy decision today, the EUR/USD rose initially then sold off, before bouncing back to rise above 1.18 as Christine Lagarde, the ECB President, starting speaking. European stock indices eased off their best levels after recovering nicely this week. Gold huffed and puffed but remained inside its recent ranges.  

ECB’s Lagarde dovish

She was characteristically dovish, saying things such as “no one wants to tighten prematurely” and that the Delta variant could dampen recovery in services, while bottlenecks are likely to dampen manufacturing in the short term. However, she countered that by saying that risks to the eurozone outlook is broadly balance. Still, policy will not be changed until CPI at 2% well ahead and during the projected horizon, which could mean 2-3 years.
Overall, the single currency remains fundamentally bearish, especially against currencies where the central bank is comparatively more hawkish. Today’s policy announcement may have been slightly different style from the ECB, but essentially there was nothing new to get excited over, with the central bank committing to nothing and delivering no surprises.
 
Gold stuck between a rock and a hard place

Gold investors found little reason to push the buy or sell buttons post ECB. Gold prices remain stuck between a rock and a hard place. The recent drop in yields should have supported the metal had it not been for a stronger dollar. Whenever yields have bounced back, this has been countered by a slightly weaker dollar index, keeping gold investors guessing as to which force is the stronger of the two.

EUR/USD climbs to 1.18 but will it hold?

As there was nothing significantly new from the ECB, the euro bears had no reason to push down the accelerator. Short-covering sent the euro to above 1.18 handles, with prices also boosted by data showing US jobless claims rose sharply last week by 419K,  climbing well above 350K expected.
 
EUR/JPY chart to watch

Given the potential for risk appetite to turn sour amid rising delta cases and valuations concerns etc hurting stocks, the safe-haven Japanese yen could find support. If so, it would be best played against currencies where the central bank is uber dovish such as the euro. In fact, the EUR/JPY may be about to turn lower, as rates test THIS key resistance area around 130.10, where the bearish trend meets old support area:


Source: ThinkMarkets and TradingView.com