EUR/JPY depends on the US dollar as euro extends gains

EUR/JPY is trading flat in a narrow range between 130.08/21. The cross is steady as the offer in the US dollar pull in USD/JPY and support EUR/USD higher. 

Overnight, the US dollar sank to a fresh daily low as measured by the DXY in a disappointment that the Federal Reserve did not formally announce a reduction in its asset purchase program.

In contrast, the Fed seems to be writing off the possibility of runaway inflation and instead is focussed on the Unemployment Rate.  

In the latest data, it is seen that some 9.5 million US workers were unemployed in June 2021, compared with 5.7 million in February 2020, and the unemployment rate stood at 5.9%, up from 3.5%, seasonally adjusted.

Therefore, the Fed is still some way off from making an announcement and is by no means on the verge of creating a taper tantrum in the rates markets.

However, the admission that the US economy has made “further progress” towards the central bank’s goals means T-Day is not far away.

August’s Jackson Hole Symposium has been cited as a possible venue for such an announcement, if not, then the September Fed meeting will be the focus. 

The announcement will be depending on how strong data comes out over the next few weeks but tapering would be deemed to start in the fourth quarter and likely extending into the fourth quarter of 2022.

Rate rises are unlikely before 2023.

However, the divergence between the central banks should help to underpin the greenback in the medium term.

As for the euro, on a jam-packed week for euroland data as the bloc exits its technical recession, hopes for much stronger growth in the third quarter are dashed as the Delta variant spreads. 

Data so far has been bleak, especially in Germany. The Unemployment Rates and Change will be the focus for the day ahead as well as Confidence in the EU which is at a two-decade high currently. 

However, what might be more impactful on the euro will be US data which could serve to underpin the greenback that is in desperate need of a lift. 

Today’s preliminary reading of US second-quarter Gross Domestic Produce, expected 8.6% annualized versus 6.4% prior, will be closely monitored, so to will PCE on Friday.