Hopes of QE program expansion by ECB turns Euro bearish

Better than anticipated Euro zone manufacturing PMI, reported on October 24, enabled the Euro dollar to rally against the major currency pairs including the Japanese Yen.

The increasing probability of a Fed hike in December also paved way for the weakening of the Yen. The EUR/JPY pair ultimately hit a high of 115.665 on Tuesday.

However, the opinion of the analysts and the developments in the US now indicates that the EUR/JPY would undergo a correction in the short-term.

The Eurozone inflation data (flash estimate) for October, reported by the Eurostat, on Monday, indicated that the consumer prices have risen marginally by 0.5% on a y-o-y basis. The core CPI increased 0.8% and in line with the analysts’ expectations. Holder Sandte, the analyst at Nordea’s bank stated that the flash CPI data did not impress the market in any manner.

In fact, considering the inflation rate target of 2%, Sandte now believes that the ECB (European Central Bank) would certainly announce an expansion of the quantitative easing program in December. It should be noted that the trillion euro dollar bond purchase program is scheduled to end on March 2017. The European economy also registered a lackluster Q3 GDP growth of 0.3%, compared to the prior quarter.

In the US, the FBI’s investigation into the Hillary Clinton’s email server has once again changed the lead scenario. The latest survey indicates that Donald Trump is just three points behind Clinton. The results have increased the nervousness among investors across the globe. The Greenback remains weak at the backdrop of the survey results. Under these circumstances, it is but natural for the investors to look for a safe cover, and the Japanese Yen is one among them.

After failing to cross the resistance at 115.50, the EUR/JPY pair has started retreating towards the minor support at 110.80. The downtrend is also confirmed by the negative reading of the MACD indicator.

To benefit from the probable uptrend, a currency trader can go short near 114.50, with a stop loss above 115.80. The short position can be covered when the currency pair falls to 111.

By purchasing a one touch put option from a binary broker, a similar trade setup can be created. The target level for the put option should be ideally greater than 112.50. The trader should also select a put option contract which expires in the first week of December.

---