US-Japan intervention caps Euro gains, Hormuz reopening could lend further support

Last week’s joint US-Japan FX intervention in the yen took an unusual form, as the New York Fed reportedly sold euros, rather than dollars, in order to fund its JPY purchases.

This perhaps acted to exacerbate the move lower in the EUR/JPY pair and may have inadvertently capped gains in EUR/USD as well, though clearly this was more than offset by the broad deterioration in sentiment towards the dollar.

At current levels, we think that the euro is fairly accurately priced and better reflects the turn for the better in economic news out of the Euro Area and the high likelihood that the ECB will raise rates at its next meeting in September.

Whether it is able to hold onto its gains this week could depend largely on the latest headlines out of the US-Iran peace talks, with a confirmed re-opening of Hormuz likely to lend further support. Revised PMI figures (Wednesday) and June retail sales (Thursday) will also be closely watched.