A brief synthesis of the latest economic and fundamental data for the EU and Japan is given below.
The European economy is showing the first signs of recovery. This is evidenced by an improvement in the Eurozone’s consumer sentiment, which has increased compared to expectations in November.
The PMI data, that was published this week, also indicates a rebound. Both PMI components were better than expected.
The European Central Bank began the largest withdrawal of liquidity from the banking system in its history as of last Friday, pushing banks to repay hundreds of billions of euros in ECB loans. The move is part of the ECB's efforts to fight record high inflation.
These measures are bullish for the euro against other currencies.
Japan's manufacturing activity declined in November at the fastest pace in two years. The decline in the country's manufacturing activity was attributed to worsening demand due to strong inflationary pressures.
Tokyo's core consumer prices showed their fastest annual growth rate in 40 years in November. They exceeded the central bank's 2% target for the sixth month in a row. This situation indicates increased inflationary pressure.
At the same time, the Central Bank of Japan continues its soft rhetoric, thereby increasing the rate differential between the economies of Europe and Japan. It looks like this monetary policy will continue until the spring of 2023, when the country will change the leadership of the Bank of Japan.
Europe's economy looks better than Japan's at this point.
Why haven't we added the U.S. economy to the comparison? Because the dollar has already had a record rally this year and is now correcting against world currencies. The European economy, due to better macroeconomic factors, is now more relevant for speculative deal opening.
According to the technical analysis, EUR/JPY is in an uptrend and in the light of unchanged Japanese policy this trend will continue. We can see an attempt to exit the upward triangle on the chart, which is now being tested from top to bottom.
Thus, the short-term target for the EUR/JPY is an updated local high of 148. After that, we can keep a keen eye on more global targets for an exit from the triangle.
A stop can be placed at the lower boundary of the triangle at 142.
It’s recommended to open long positions on the currency pair EUR/JPY:
Take profit – 148,00
Stop – 142.00