How to Trade EUR/JPY

The Euro-Yen pair is called a cross pair because the USD is not a part of it. This somewhat complicates things for South African traders. Not only are the movements of the pair influenced by the economies of the two currency zones, but it is also dependent on the movements of the USD. For example, if there was a rise in the major pairs like EUR-USD and USD-JPY because of USD-driven events (such as new Federal Bank interest rates), then the EUR-JPY would have to rise.

However, this doesn’t mean that the EUR-JPY pair is not a good pair to trade, as long as you know what to look for.

Knowing how to trade EUR-JPY is partly about being aware of the economic releases by the central banks of the two currency regions. One of the most important things for South African traders interested in the EUR-JPY pair is to follow the releases by the European Central Bank (ECB) and the Bank of Japan (BOJ).

The central banks provide most of the sources a trader in South Africa will need for this pair. The ECB meets once every six weeks, and the BOJ meets once a month. Visit the official websites of the two central banks and look for the indicators to make out which way the economies are going.

The European indicators to follow include:

• Inflation or the CPI (Consumer Price Index)
• PMI or Purchasing Managers Index (PMI)
• Interest rate decisions
• Press conferences

The CPI must be tracked for both regions because the central banks try to keep inflation close to 2 percent. In case, anything moves higher or lower, the banks are going to take action.

The PMI is important as it tells you how strong the services and manufacturing sectors are in the European economy. The numbers will point towards the steps the ECB could be taking at the next meeting and suggest which way the Euro could move.

The press conferences of the ECB involve questions and answers, based on which the markets can fluctuate. Based on these indicators, a trader in South Africa can make an educated guess about which way the EUR-JPY will go. For example, if the inflation moves far above 2 percent in the European region, the ECB is likely to cut interest rates and this will negatively affect the Euro, which will cause the EUR-JPY rate to fall.

In Japan, the CPI, retail sales, GDP and other indicators can be found in the Tankan Report (which comes in an English version). This report can be found on the BOJ website.

Be sure to follow any news about Japan’s bond program, which is intense and probably more influential on the Japanese Yen than the other secondary indicators on the Tankan Report.

Also, keep an eye out on general news out of Japan. Because of the geographical position of Japan, the JPY is influenced by natural disasters. Moreover, it’s also very sensitive to the global stock market fluctuations.

Overall, the EUR-JPY is highly volatile, much more than the EUR-USD, because of the JPY’s sensitivity to the Tokyo stock market. Therefore, you need to make an educated guess about the direction of movements based on the trends you track. If you expect the Euro to fall with respect to the Yen, go for a put option. If the expectations are opposite, purchase a call option.