Will the rise of the Euro turn in July? | Stock Voice | Moneyクリ MoneyX Securities investment information and media useful for money.

Euro/Dollar has been in six consecutive uptrends

• The rise of the Euro and the decline of the Dollar cannot be stopped. Some say it is a "structural decline of the Dollar" due to the loss of confidence in the Trump administration, but it is considered to be a cyclical overshoot in the market.

・The Euro/US Dollar has had six consecutive bullish candles on the monthly chart. In foreign exchange, it is rare for there to be six months in a row, regardless of bullish or bearish candles. The US Dollar/Yen showed a remarkable one-sided depreciation of the yen until 2024, but even so, there were no six consecutive bullish candles. In July, the Euro/US Dollar is expected to turn bearish.

The previous Euro strength and Dollar weakness justified by interest rate differentials

• The recent depreciation of the Dollar and appreciation of the Euro does not seem to be structural, but rather related to cyclical interest rate differentials. The interest rate differential is shrinking, with the Euro underperforming and the Dollar outperforming. The ECB (European Central Bank) has decided to halt interest rate cuts for the time being, while interest rate cuts in the U.S. are approaching. Such changes in cyclical interest rate differentials suggest an appreciation of the Euro and depreciation of the Dollar. The U.S. employment statistics released on July 3 showed unexpectedly strong numbers, leading to an increase in U.S. interest rates. The previous Euro appreciation and Dollar depreciation were justified by interest rate differentials, but this seems to indicate a potential reversal.

Looking at the positions of speculators, since June, buying of the Euro has been expanding. This has likely led to a rise in the Euro to nearly 1.2 Dollar. However, due to the impact of changes in interest rate differentials, we are entering an uncertain phase regarding whether the Euro's strength will continue.

Position Adjustment Before Summer Vacation

• Movements in one direction tend to reverse in July. Until 2024, the USD/JPY had been moving in one direction towards a weaker yen, but it has now reversed and is moving towards a stronger yen. Such a shift occurring in July has happened for three consecutive years, and the USD/JPY tends to decline in July. The cause is likely position adjustments. Before entering the long summer vacation, there is a tendency to consolidate excessive positions, which is observed every year leading into August. Additionally, the EUR/USD has seen early profit-taking movements due to rising US interest rates sparked by employment statistics.

The Relationship Between Euro/Yen and Stock Prices

Regarding the Euro/Yen, it reached a high of 175 yen in July 2024, while the USD/Yen plummeted, causing the Euro/Yen to also drop sharply. However, although the USD/Yen is quite far from its high a year ago, the Euro/Yen has significantly surpassed 170 yen since the week of July 7, coming close to its high from a year ago. This rapid rise cannot be explained by interest rate differentials. The Euro/Yen is the product of USD/Yen and Euro/USD, so as Euro/USD rises, Euro/Yen also increases. Nevertheless, it is still significantly detached from interest rate differentials.

The movement of the Euro/Yen can be explained by stock prices. In the case of a rising stock market and risk-on sentiment, cross-yen tends to rise, while in the case of a declining stock market and risk-off sentiment, it tends to fall. Over the past half month, stock prices have been rising globally. The justification for the rise in Euro and the decline in Yen is risk-on sentiment. From here, whether the Euro/Yen goes up or down can be said to depend on stock prices.

• The Trump tax cuts were passed by Congress. This could become a factor in inflation and raises concerns about the widening fiscal deficit. Additionally, there is a risk of rising interest rates, and U.S. stocks may also face concerns of being overbought in the short term, making corrections likely. The rise of the Euro/Yen due to risk-on sentiment is unlikely to last long.

When overlaying the Euro/Yen chart with the 52-week moving average, it is the first time since 2020 that the Euro/Yen has significantly fallen below the moving average during its upward phase, indicating a potential trend reversal. The Euro/Yen is transitioning into a downtrend. Any temporary increase will remain limited to not exceeding the 52-week moving average by a large margin. Currently, it is about 10 Yen above, and it wouldn't be surprising if it falls below the moving average and experiences a sharp drop.