- EUR/JPY is likely to drop to near 144.40 as ECB has projected negative growth rates in Eurozone.
- A price ceiling on European gas could result in an additional margin of $33bln for energy traders.
- The Japanese yen is performing better after a holiday on account of Thanksgiving Day.
The EUR/JPY pair has refreshed its three-day low at 144.61 and is expected to display more weakness further. The cross is facing immense pressure after Tokyo’s open post a holiday on account of Thanksgiving Day. The risk profile is extremely upbeat as US Treasury yields are facing immense pressure.
The shared currency bulls are facing a sell-off against the Japanese yen as European Central Bank (ECB) Vice President Luis de Guindos has projected negative growth rates for the fourth quarter. He further added that “Upcoming inflation data projections will still be high before starting to slow down in the first quarter of 2023”.
Supply chain bottlenecks led by Russia-Ukraine tensions have resulted in a significant decline in Eurozone economic activities. Also, expensive energy prices have weighed on the real income of households. Meanwhile, chatters over a price cap on energy have triggered fears of destabilization of the market.
European Union (EU) authorities are planning to levy a ceiling on energy prices to safeguard households from a sheer decline in their real income. In response to that, Intercontinental Exchange (ICE) has warned that the finalization of the price ceiling on European gas would force energy traders to stump up an additional $33 bln in margin payments, as reported by Financial Times. Such a large increase in margin requirements could “destabilize the market”,
On the Japanese yen front, low inflation is still a major concern for Japan. To combat deflation, Japanese Prime Minster Fumio Kishida has announced a $200 billion stimulus package recently. This kind of stimulus package usually spurts global inflation. However, Vitor Gaspar, Director of the fiscal affairs department at the International Monetary Fund (IMF), told Nikkei it is important for Japan that inflation rises to a sustainable target to counter the effects of deflation.
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