Euro recovery against Japanese Yen stalls despite upbeat German Factory data

EUR/JPY rebound from 180.50 lows has stalled below 182.00 on Friday.
Bright German Factory orders have failed to provide additional impulse to the Euro on Friday.
Analysts point to BoJ's hawkishness as the most likely reason for the impressive Yen recovery seen earlier this week.

Guillermo Alcala FXStreet

The Euro (EUR) posts moderate gains against the Japanese Yen (JPY) on Friday, with the EUR/JPY pair trimming some losses after a whopping 500-pip sell-off in the previous two days. Euro bulls, however, remain capped below 182.00, after bouncing up from one-month lows at 180.53 on Thursday.

Markets are still wondering about the reasons for such a sharp Yen rally, with currency analysts pointing to comments by Bank of Japan officials hinting at a steeper monetary tightening cycle over the coming months, rather than to another FX intervention by the Japanese authorities.

Strategists at OCBC caution against “extrapolating the latest pace of JPY gains.” However, they note that the “combination of firmer BoJ expectations, softer UST yields and potential shifts in domestic institutional flows has turned the near-term backdrop more supportive for JPY,” suggesting a more constructive bias even as they warn that the move could moderate from here.

German industrial data beats expectations

In Europe, data released by Destatis earlier on the day showed a 2.5% increase in July's Factory Orders, exceeding market expectations of a 0.3% rise, after the 3.7% gain posted in June.

The report shows that the main reason for the positive surprise was the higher orders for large transport equipment, such as ships, trains, and military vehicles, which rose 124.6% in July. These figures conceal a 12.5% decline in orders for the key automotive industry, which might have tempered investors' enthusiasm about the headline figure.

In a few minutes, Eurostat will release Eurozone's Retail Sales numbers for July, which are expected to show a 0.3% increase, reversing June’s 0.3% drop. At the same time, European Central Bank (ECB) member Philip Lane will meet the press and likely reiterate that the bank is ready to hike interest rates further.

Economic Indicator

Factory Orders s.a. (MoM)

The Factory orders released by the Deutsche Bundesbank is an indicator that includes shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the German economy and could be an inflationary factor. It is worth noting that the German Factory barely influences, either positively or negatively, the total Eurozone GDP. A high reading is positive (or bullish) for the EUR, while a low reading is negative.

Economic Indicator

Retail Sales (MoM)

The Retail Sales data, released by Eurostat on a monthly basis, measures the volume of retail sales in the Eurozone. It shows the performance of the retail sector in the short term, which accounts for around 5% of the total value added of the Eurozone economies. Retail Sales data is widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the MoM reading comparing sales volumes in the reference month with the prior month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish

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