EUR/JPY slumps on easing yields
- EUR is under pressure on subdued EZ economic data.
- JPY is a major beneficiary of easing US T-yields.
EUR/JPY is now trading around 131.55 in the late New York session,down by 0.65% on Yen´s recovery.
EUR is also under pressure on a flurry of soft PMI across the Eurozone including Germany on Wednesday and German IFO data on Thursday, which casted a shadow on the narrative of reflation.
On Thursday, the German IFO Business climate index for Feb came subdued at 115.4 vs. an estimate 117.1; prior: 117.6. Similarly, German business expectations, and the current assessment came below estimate. Overall, it seems that the recent plunge in the German stock market may have also affected the German consumer sentiment along with a stronger currency.
But it’s also important to note that this was the first decline of EZ PMIs in 3 months and that it comes on the heels of the strongest EZ PMI reading since 2006. The PMI data shows that the EZ economy is still very strong, with the index hovering around 60.
Meanwhile, the German finance ministry monthly bulletin was also very upbeat on the prospect of the German economy. As par German Finance ministry, Germany’s broad-based economic upswing is expected to continue and they are very bullish on the German economic outlook amid strong domestic demand, high private consumption, record high employment and rising real wages´ growth along with increasing jobs´ security.
Also, low borrowing costs, rising exports orders from abroad and upbeat private capex is supporting the German economy, which in effect will also help more jobs´ creation, wages´ growth and ultimately would spur consumer spending, growth, and inflation.
The latest ECB minutes showed that some council members favored dropping the easing bias, but it also highlighted that changes in the communication are premature at this stage. Overall, the ECB communication´s policy will evolve to avoid abrupt, disorderly adjustment later and it could be revisited in the forthcoming meetings. The ECB is increasingly confident about inflation outlook but patience is also required.
Although the above minutes are nothing new to the market as they are in line with Draghi´s presser post-ECB meeting, EUR bulls may be happy that the ECB is at least discussing a change in policy guidance, albeit gradually and thus it looks less dovish than expected, giving the EUR a boost.
Technically, the EUR/JPY has now strong Asupport at the 131.10-130.00 area and a resistance at the 132.50-132.80 zone.