EUR/JPY sits in 115.50s consolidating in April lows, awaiting next impetus

• Mixed market sentiment for COVID-19 unlocking of economies leaves EUR/JPY hanging patiently in 115.50s, an Apri low.
• Markets will now start to focus on the European Central Bank and Fed.

EUR/JPY is currently trading at 115.57 between a range of 115.57 and 115.58 and uneventful so far in Asia. It was a mixed session for risk markets overnight, with the S&P 500 down 0.5%, while Euro Stoxx was up 1.7% and FTSE 100 was up 1.9% which left the cross hanging in the balance, awaiting a more decisive market.

EUR/USD round-tripped from 1.0820 to 1.0888 and back while USD/JPY dropped from 107.30 to 106.56 which was a six-week low before it then moves in to settle 30 pips higher and consolidate. There were mixed feelings over nations attempting to go back to work by easing social distancing measures which could spark a second wave of coronavirus new cases and deaths. 

Eyes on the ECB and glancing to the Fed

Meanwhile, there is going to be a focus on the European Central Bank which is set to announce a further increase in the PEPP and the Federal Reserve April meeting which concludes tomorrow. Beyond a possible technical adjustment to the interest on excess reserves rate from 0.10% to 0.15%, nothing more is expected from them, however.  What might be more interesting, from the two central banks, is what the ECB will refrain from doing? The Fed has already thrown the kitchen sink at the crisis, but the ECB is in a more precarious position. 

"We do not expect the ECB to cut its deposit rate further," analysts at ABN Amro explained, noting Executive Board member Isabel Schnabel's reasons for not cutting in prior meetings:

Executive Board member Isabel Schnabel explained recently why the ECB did not cut rates last month in response to the economic shock. She asserted that ‘a further cut in our main policy rate – the deposit facility rate – would have been unlikely to support sentiment and market functioning at a time when banks’ profitability was already expected to come under additional pressure due to the crisis’. This situation has not changed.

Meanwhile, the analysts at ABN explained that there has also been speculation that the ECB will expand its corporate bond purchases to include high yield bonds that have been downgraded from an investment-grade rating since the coronavirus shock hit. "Although they have loosened their collateral requirements in such a fashion, we think the ECB will have a different attitude to the risks related to outright purchases compared to the acceptance of collateral. So although the chances of such a move have risen, we do not expect it in our base case."

EUR/JPY levels

Meanwhile, analysts at Commerzbank explained that EUR/JPY is expected to recover from its current April low:

We note the divergence of the daily RSI and the 13 count on the daily chart, both suggest scope for near term recovery. Rallies should find initial resistance at 116.37 the near term resistance line and the 55 day moving average at 118.61 together with the current April high at 119.03. Only a fall below the September and current April lows at 115.87/56would put a 61.8%/78.6% Fibonacci retracement cluster of the 2012-2014 and the 2016-2018 advances at 115.39/34 on the map. A fall below this area would see the technical picture deteriorate further and target the 109.30 2016 low.