EUR/JPY bears move in at the start of the week.
Eyes on the US dollar and the FOMC minutes.
EUR/JPY leans bearish at the start of the week with a lack of impetus to move the needle so far. At 135.27, the price is a touch in the red, sliding from a high of 135.51 to a low of 135.10. The euro is under pressure as the US dollar firms due to central bank divergences.
On Friday, the Nonfarm Payrolls arrived with positive revisions and a further fall in the Unemployment Rate. Despite a miss in the headline, the majority of the data was solid and has underpinned the notion in the market that a hawkish Federal Reserve is here to stay. Subsequently, this is underpinning the greenback.
431,000 new jobs were added vs. estimates of 490,000. However, the data for February job increases were revised higher. Additionally, the Unemployment rate fell to 3.6%, the lowest since February 2020. The DXY index that measures the greenback vs. a basket of currencies was higher for the second straight day after two straight down days and is trading back near 98.50. This months cycle high near 99.418 should eventually be tested.
Meanwhile, equity markets finished the week strongly. Markets ended last week with the S&P 500 up 0.3%, the Euro Stoxx 50 up 0.4% and the FTSE up 0.3%. The yield on the US 10-year Treasury added 4bps to 2.38%. However, global data points to ongoing strong inflation.
Eurozone inflation hit a record high of 7.5% in March. Energy costs have surged 44.7% YoY. Meanwhile, non-energy goods increased by 3.4% and services lifted 2.7%. Nevertheless, the divergence to date between the European Central Bank and the Federal reserve is more favourable to a lower EUR/USD rate which is weighing on the EUR/JPY cross.
''The latest prices data indicates central banks certainly have some work ahead of them,'' analysts at ANZ bank said. ''Meanwhile,'' however, the analysts argue, ''it really looks like it is time for the European Central Bank to act. While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to abolish its QE program, which is only adding fuel to the inflationary fire, that is already quite hot enough.''
Eyes on the FOMC minutes
Analysts at TD Securities explained that ''Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting.''
''The FOMC pull no hawkish punches in its policy guidance, with Chair Powell also hinting further information about QT plans will be provided in the minutes (possibly including caps details). We continue to expect an official QT announcement at the May FOMC meeting.''
