EUR/JPY, or euro to Japanese yen, is a heavily traded currency pair. The Eurozone is the world's second largest economic region while Japan is the world's fourth-largest economy. As a safe haven currency, the yen tends to depreciate when global economic growth is high while sharply appreciating during downturns. The euro, on the other hand, tends to move in the opposite direction. Thus, the pair is often seen as a proxy for global sentiment. Prior to the French elections of 2017, investors went short EUR/JPY in order to hedge their long euro positions. Following the elections, the pair strengthened sharply as optimism returned to the Eurozone.
The euro is currently strengthening against all major currencies. The common currency is the strongest against the Japanese yen and the US dollar. Yesterday, the euro rebounded against the US dollar after finding buyers at the low end of our daily trading range (1.1510). The euro continues to strengthen today. Today's EUR/USD trading range remains 1.1510 - 1.1680.
Beyond finding buyers at recent lows, the euro is making gains today thanks to improving sentiment figures. While German manufacturing PMIs (a measure of sentiment) fell relative to previous monthly figures, composite PMIs were better than expected. This suggests that the outlook for the services sector is improving. A similar pattern can be seen in French PMI data. PMIs and other sentiment figures are a good forward-looking indicator, and tend to correlate well with future GDP growth figures.
Given the Eurozone's manufacturing and export-oriented economy, manufacturing PMIs tend to have a bigger influence on the currency. Between decelerating global growth and rising trade tensions, the outlook for Eurozone manufacturing is declining. German auto manufacturer stocks suffered significant declines yesterday after Daimler AG (the parent company of Mercedes Benz) issued a profit warning. While better-than-expected Eurozone services sentiment is welcome news for euro bulls, the ongoing deterioration in the more important manufacturing sector is a significant issue. Later today, we'll see manufacturing PMIs for the broader Eurozone. Our outlook on the euro remains bearish.
EUR/USD is up and trading above 1.1650. The euro is up against the yen, with EUR/JPY trading above 128.30. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8760.
|June 18||ECB President Draghi Speech|
|June 19||ECB President Draghi Speech|
|June 19||ECB Praet Speech|
|June 19||Eurozone Current Account S.A. APR||€28.4b||€32.0b|
|June 20||Germany PPI YoY MAY||2.7%||2%|
|June 20||ECB Lautenschläger Speech|
|June 20||ECB Cœuré Speech|
|June 20||ECB President Draghi Speech|
|June 21||France Business Confidence JUN||110||110|
|June 21||Eurozone Consumer Confidence Flash JUN||-0.5||0.2|
|June 22||Germany Markit Composite PMI Flash JUN||54.2||53.4|
|June 22||Germany Markit Mftg PMI Flash JUN||55.9||56.9|
|June 22||France GDP Growth Rate QoQ Final Q1||0.2%||0.7%|
|June 22||Eurozone Markit Composite PMI Flash JUN||54.1|
|June 22||Eurozone Markit Mftg PMI Flash JUN||55.5|
The Japanese yen is weakening against all currencies except the British pound today. The yen weakened yesterday after US Federal Reserve Chair Powell suggested that the case to raise US interest rates was "strong". His comments sent US Treasury bond yields higher, and also pushed up yields for many other developed country government bonds. Today's USD/JPY trading range remains 109.50 - 111.20.
The main short-term driver behind the yen remains rising US Treasury bond yields and overall strength in the US dollar. Thanks to accelerating US growth and inflation, the US currently has the best economic outlook of any major country in the world. A combination of relatively strong US growth and supportive risk sentiment is helping the yen weaken further.
Turning to other developments, Bank of Japan board member Funo said that Bank needs to focus on weak inflation. Funo said that the BoJ should continue its powerful monetary easing policies, while risks for weak inflation over the long-term were large. Governor Kuroda recently acknowledged weak inflation, and promised to deepen the debate regarding its causes at next month's meeting. Recent communications from the BoJ suggest that the Bank remains committed to its existing policies. Thanks to a slowdown across Europe and Asia, Japanese monetary policy is not expected to tighten at any point in the near future. Our outlook on the Japanese yen remains bearish.
|June 18||Adjusted Merchandise Trade Balance MAY||-¥300.0b||¥550.0b|
|June 20||BoJ Monetary Policy Meeting Minutes|
|June 20||BoJ Kuroda Speech|
|June 21||Foreign Bond Investment 16/JUN||¥1490.4b||-¥475.6b|
|June 21||Stock Investment by Foreigners 16/JUN||-¥40.8b||-¥108.3b|
|June 21||BoJ Funo Speech|
|June 22||Inflation Rate YoY MAY||0.6%|
|June 22||Core Inflation Rate YoY MAY||0.7%|
|June 22||Nikkei Manufacturing PMI Flash JUN||52.8|
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