EUR/JPY inched up on Japanese concerns of a stronger Yen
- The Yen is under pressure on Japan’s concern about a stronger Yen, negative for JP economy.
- EUR is also under stress on a broad recovery in the US dollar.
The EUR/JPY is now trading around 132.40 in the NY session, up by 0.12% on Tuesday , ranging as both, the Euro and the Yen are uder pressure from rising Dollar.
The Euro is under pressure after the ECB got a new Vice President on consensus nomination in the form of De Guindos, the current Spanish economy/finance minister. Incidentally, FM of Spain is not an economist and thus the market is concerned that the appointment of a non-economist political figure may tarnish the image of ECB’s independence.
On Tuesday, overall EU economic data was mixed. German PPI for January came above estimate at 2.1% against an estimate of 1.9%; prior: 2.3% (YOY), while it was up on MOM basis at 0.5% vs estimate of 0.5%; prior: 0.2%.
German ZEW current conditions index for Feb came negativ (92.3 vs estimate 93.9; prior: 95.2), while German ZEW economic sentiment came upbeat (17.8 vs estimate 16.5; prior: 20.4). EZ ZEW economic sentiment came above estimate at 29.3 vs estimate 28.4; prior: 31.8.
Overall, German ZEW data was mixed and it may be also a function of a volatile German stock market. As par ZEW: “EZ/German inflation expectations have started to rise and German economy is seen improving in next 6 months”.
But right now, EUR may be a victim of EU politics and US dollar recovery. Next week, all the focus may be on German politics as Merkel is awaiting the result of the ballot of her potential “grand” coalition partner SPD. The vote is a postal ballot among SPD's 464,000 members on the question if SPD should go ahead in a coalition government with Merkel's conservative CDU/CSU group (coalition referendum election with Merkel).
After last week’s light Japanese jawboning, JPY lost further strength on Tuesday when Japanese Finance Minister, Aso, reiterated that the BOJ has to continue working with the government to achieve the 2% inflation target, although the country may have more or less escaped from an economic depression. In comparison, BOJ’s Kiuchi sounded more hawkish, when he said that the BOJ has to gradually edge away from the crisis-mode stimulus.
Overall, EZ economy is now firing all the cylinders and performing well. Thus it now seems that ECB is not concerned about the strength of the currency and eventual policy normalization. Over the last few months, ECB was increasingly shifting its focus from QE tapering to rate hikes. The same is also almost true for the JP economy and the BOJ and thus the EURJPY pair is now range bound.
Technically, EURJPY has now good support around the131.40 zone and for any bounce back, it needs to sustain above the 132.85-133.15 price area.
