EUR/JPY gains traction above 178.00 ahead of German/Eurozone ZEW Survey releases

EUR/JPY drifts higher to around 178.35 in Tuesday’s Asian session.
Risk-on mood and the ECB’s cautious tone support the Euro against the Japanese Yen.
Intervention fears might help limit the JPY’s losses.

Lallalit Srijandorn FXStreet

The EUR/JPY cross gains ground to near 178.35 during the Asian trading hours on Tuesday. The Euro (EUR) strengthens against the Japanese Yen (JPY) on improved risk sentiment. The release of the German and Eurozone ZEW Economic Sentiment Index will be in the spotlight later on Tuesday.

Traders expect an end to the US government shutdown in the coming days after the US Senate on Tuesday passed a funding bill, which will head to the House of Representatives for final approval. This positive development could provide some support to the riskier asset, like the EUR against the JPY, in the near term.

The cautious tone of the European Central Bank (ECB) might contribute to the EUR’s upside. ECB Vice President Luis de Guindos said on Monday that the current level of interest rates is “appropriate,” noting that inflation is moving closer to the 2% target. Meanwhile, other ECB policymakers urged caution on rates, emphasizing the need to remain vigilant against lingering price pressures.

However, expectations that Japanese authorities might intervene to stem further weakness in the domestic currency might cap the upside for the cross. Japan's Finance Minister Satsuki Katayama last week issued a warning against the JPY's rapid and one-sided movements, saying that the government is monitoring the situation with the utmost urgency amid market concerns that currency intervention may occur.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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