Euro Out-Doves Japan Breaching 200-Day Average

The euro is set to weaken versus the yen as Mario Draghi challenges Haruhiko Kuroda of Japan as the developed world’s most dovish central banker.

The euro-yen rate closed below its 200-day moving average for the first time since November 2012 this week. That’s a bearish signal that could translate to sharper losses should the 18-nation currency revisit its low for the year set in February, according to Citigroup Inc. The euro has already tumbled 4.6 percent against its Japanese counterpart in 2014, ending a rally that started in July 2012.

While strategists in Bloomberg surveys have forecast all year that the euro would weaken versus the dollar, they expected declines against the yen to be more limited as the Bank of Japan prints unprecedented amounts of cash to boost its economy. Those assumptions were upended on June 5, when the European Central Bank unveiled new monetary easing measures, including negative interest rates on deposits.

“The ECB sounded dovish and we may well see more from them,” Shyam Devani, a technical analyst in Singapore at Citigroup, the world’s largest foreign-exchange trader, said yesterday by phone. “Our bias is that euro-yen does go lower.”

The euro fell to as low as 137.88 yen yesterday, the weakest level since Feb. 6, after closing on June 10 at 138.66, below its 200-day moving average, data compiled by Bloomberg show. The shared currency traded at 138.03 as of 6:05 a.m. in Tokyo. It slipped to a low for the year of 136.23 on Feb. 4.

Outside Day

The formation on June 9 of what’s known as a bearish outside-day pattern, where the euro’s high and low versus the yen exceeded those of the previous trading day, added to Citigroup’s negative view.

At the start of the year, strategists in Bloomberg surveys predicted a 6.9 percent decline for the euro against the dollar and a 4.7 percent slide versus the yen.

ECB President Draghi’s announcement last week of rate cuts and hints of more radical measures to come is prompting some forecasters to reassess their view of the shared currency against the yen. Economists are speculating that the BOJ, led by Kuroda, won’t expand a 70 trillion-yen ($684 billion) annual bond-buying program at its policy meeting this week. The Federal Reserve is tapering its unprecedented debt-purchase program and may end it this year.

“The ECB will run around with very low rates for a very, very long time -- much longer than the Fed and perhaps comparably longer than the BOJ,” Ulrich Leuchtmann, the head of currency strategy at Commerzbank AG in Frankfurt, said in a June 10 phone interview. “Rates are low across the globe, but the risk that we see an upward shock in interest rates is much lower with the euro.”

Before it's here, it's on the Bloomberg Terminal.