What is represented by the EUR/JPY currency pair?
The EUR/JPY currency pair represents the exchange rate of a Euro in Yen. It therefore gives the equivalent value of one Euro in Yen.
This currency pair is significant as it represents by itself nearly 3% of all transactions completed every day on the foreign exchange market. It is the 7th most traded currency pair throughout the world.
It should be noted that trading in the EUR/JPY currency pair is interesting as it is one of the most volatile pairs on the market. It is for this reason that the EUR/JPY currency pair is particularly suitable for ‘scalping’. In fact, its historical volatility has in the past reached nearly 210 pips.
Which organisations determine the rates for the EUR/JPY?
The entities responsible for determining the interest rates of currencies are of course the large central banks of each country or group of countries. Concerning the Euro it is the ECB, or European Central Bank, that is responsible. For the Yen it is the Bank of Japan that determines the rate.
The interest rates of these two currencies change regularly of course and information is published in the economic calendar regarding each movement.
Why do the rates influence the EUR/JPY exchange rate?
The influence of interest rates on currencies such as the Euro or the Yen is as strong and large as the different rates relating to a currency pair. Therefore, a currency with a weak interest rate will be less expensive to buy and a currency with a strong interest rate will be more advantageous for resale.
It is therefore possible to implement an effective trading strategy using an analysis of these rates and by anticipating their movements to take or close positions.
What are the signals and events to follow when trading this currency pair?
To efficiently trade the EUR/JPY pair you should pay close attention to the various economical and political announcements that could be highly influential to this rate. However, news concerning the Euro has more of an impact here than that concerning the Yen as the single currency is the base currency of this pair.
In any case, the Yen has a certain particularity that should be taken into account to avoid making mistakes. In fact it is a currency particularly suited to the Carry Trade and even more so when it is paired with the Euro as adversary. It is actually the directing interest rate of the Yen, artificially maintained close to zero by the Bank of Japan, that favours the use of this currency to make profits through differential rates.
Please note: The Carry Trade is no longer the most popular way to trade the yen and particularly the EUR/JPY currency pair which remains heavily influenced by the European economy. Another point, the interest rates differential has strongly decreased over the last few years and in parallel the Yen has increased in value due to this trading method which has created a lack of competitiveness relative to the country’s exports recently.
The different elements to know concerning the EUR/JPY currency pair:
When trading the EUR/JPY currency pair you should understand certain fundamental elements. For example, this currency pair is quoted on the Forex with two decimal places even though some brokers show the rates with three decimal places. The rate of this pair is called a floating rate as it is ruled by the law of supply and demand exercised on the Forex.
The monetary policy of these two currencies is implemented and controlled by these ruling financial organisations; the Central European Bank for the Euro, and the Bank of Japan for the Yen. It is important to note that the BoJ has the habit of regularly intervening on the foreign exchange market to artificially modify the rate of the Yen so favouring the export competitiveness of the country.
In a general manner, all publications emanating from one or the other currency controlling establishments will have an impact on the rate of the EUR/JPY currency pair.