Short EUR/JPY – Euro Suffering From Slow Vaccine Rollout, Yen a Safe Haven Again
Quite how the European Union made such a mess of vaccinating its people against Covid-19 is complicated. Aiming for EU solidarity, the European Commission negotiated on behalf of all the EU countries with the vaccine manufacturers and succeeded in buying the jabs cheaply, holding the drug companies to account and obtaining enough to vaccinate the whole of the EU.
Unfortunately, side effects included delays in delivery, bickering between the EU states and a slower vaccination program than either the US or the UK. The result: a weaker Euro on the likelihood that the EU economy will recover more slowly from the slump caused by the pandemic than other nations and regions. Moreover, that’s a perception that will likely persist for many more months and that, in turn, will likely mean the Euro weakens further.
So the question, if you’re a Euro bear, is which currency to sell it against and, of the many alternatives, the Japanese Yen is one to consider.
EUR/JPY Price Chart, Daily Timeframe (August 3, 2020 – March 24, 2021)
Chart prepared by Martin Essex, created with IG
As the chart above shows, the Euro has been climbing against the Yen for months now; indeed EUR/JPY has been advancing since the start of the pandemic, which is remarkable given that the Yen was once seen as a safe haven. Truth to tell, there has only been one safe haven over the past year and that, of course, has been the US Dollar.
Towards the end of the first quarter, however, there were signs that the Yen was coming back into fashion as one of the go-to currencies for traders seeking havens and that suggests it could well strengthen in the second quarter if the global economic recovery fails to emerge at quite the optimistic rate the markets seem to be expecting.
So, putting together a weak Euro with a stronger Yen, there is plenty of scope for EUR/JPY to weaken if – like me – you think the recovery will be rather bumpier than current market pricing implies.