The Euro (EUR) registers considerable upward momentum against the Japanese Yen (JPY), fueled by anticipation of trade deal progress between the United States and the European Union. This optimism combines with a robust economic performance in Germany where industrial output figures exceed predictions. Meanwhile, a surprise 25% levy on all Japanese imports by the US, set to come into force in August, was announced by President Trump.
EUR/JPY advances, with transactions approaching 171.10, reflecting a near 0.58% day-on-day rise. This rate is an almost one year high. Investor focus is predominantly on upcoming trade negotiations as the deadline for tariff imposition looms on Wednesday. The tariff announcement on Japanese imports has led to a declining yen.
Germany’s Industrial Production figures for May, disclosed on Monday, convey a promising turnaround, illustrating a monthly growth of 1.2%. This scale of growth surpasses estimates and notably outperforms last month’s downturn of 1.6%. The annual output rose from a previous 2.1% contraction to a current 1% growth, symptomatic of a revitalization within the manufacturing sector.
In contrast, there was a 0.7% decline in Eurozone Retail Sales monthly figures for May, which reflects ongoing consumer restraint. However, this predictable downturn was counteracted by an annual increase of 1.8%, a figure surpassing the 1.2% projection, thereby alleviating some concerns over faltering demand.
A bright spot came in the form of boosted investor confidence, as indicated by the Sentix Investor Confidence index for July. An inspiring climb to 4.5 points, from a consensus estimate of 0.2, provided the first inkling of significant optimism in recent times, suggesting that the bloc’s morale is improving.
Over the weekend, US President Donald Trump and European Commission President Ursula von der Leyen had a telephone discussion focused on their bilateral relationship. This was arranged to expedite trade agreement discussions between the US and EU, a critical task before Wednesday’s imminent tariff deadline.
The Monday report by the European Commission quoted spokesman Stefan De Keersmaecker’s words hinting at a positive exchange between the two principal leaders. Despite this, neither party, the EU nor Japan, has managed to effectively forge a trade deal with the US.
Initial trade discussions with Japan experienced abrupt discontinuation. The abrupt halt was catalyzed by Japan’s hesitance to buy US rice. In response, President Trump sent a notification to Japan, carried by Bloomberg reports, that a 25% tariff would be levied on all imports from Japan to the US starting from August 1.
The EUR/JPY pair remains on an upward trajectory, moving well beyond the 78.6% Fibonacci retracement level of the slump from July to August 2024, registered at 170.93. A range of technical indicators, such as the 10-day Simple Moving Average (SMA), provide support at 169.64, bolstered by the underpinning of the 20-day SMA at 168.30.
These moving averages lean heavily towards an ascent, indicating strong bullish tendencies. Nevertheless, caution is suggested by the Relative Strength Index (RSI) showing values in excess of 73, typically associated with overbought conditions and foreshadowing potential upcoming pullbacks or consolidation phases.
On the higher side, immediate resistance is apparent in the region of 171.30. Subsequent thresholds lie at the crucial levels of 173.00 and the historical July 2024 high of 175.43. Conversely, prior resistance at 170.00 as well as the 61.8% Fibonacci retracement at 167.40 have been repurposed as buffers for support.
As long as the price remains above the 168.30–167.40 inflection zone, technical indicators propose a continual positive outlook. In the lead-up to the presidential elections in November 2024, Trump had explicitly emphasized his intention of using tariffs as leverage to bolster the American economy and local manufacturers.
During 2024, a significant proportion, approximately 42%, of total US imports originated from Mexico, China, and Canada. Mexico, in particular, emerged as a key player exporting an abundant $466.6 billion worth goods, as per data gathered by the US Census Bureau.
Trump expressed a strategic intent to focus on these three countries with respect to tariff imposition. Moreover, an ambitious plan to utilize revenue generated from these tariffs for the reduction of personal income taxes was also unveiled.
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