The euro zone is set to release its GDP readings for the second quarter of the year and is widely expected to show disappointments, possibly a chance to hop in a euro short currency trading setup. EUR/JPY is currently testing the falling trend line on its 4-hour time frame and this might hold as resistance for the day.
Weaker than expected GDP readings could lead to a sharp currency trading selloff from the pair’s current levels to new lows below the 135.00 mark. Stochastic is in the overbought zone and starting to move lower, indicating that sellers are ready to push EUR/JPY back down.
On the other hand, strong data could lead to an upside break from the trend line and probably a currency trading reversal for the pair. A break above the 137.00 handle could mean more gains for the pair.
Germany is expected to show a 0.1% contraction for the second quarter of the year while France might print a mere 0.1% expansion. Recall that Italy, the region’s third largest economy, already slipped back into recession and weak GDP data from the top two economies could bring the entire region into negative growth.
It doesn’t help that the region is already facing threats from Russia’s food imports sanction, as this could weigh on exports and production. Later on, the downturn could take its toll on hiring, spending, and overall economic growth. Further weakness in the euro zone could pave the way for more currency trading declines for the euro against its forex counterparts.
As for the Japanese yen, the BOJ insists that further easing isn’t needed for now as Japan continues on a moderate recovery. Sales tax hike effects are expected to fade soon and Japan could return to a more optimal pace of growth. The ECB, on the other hand, remains open to further easing after it already slashed several interest rates in an earlier monetary policy decision.
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