Stronger German data and positive sentiment towards risk boosted the euro, and simultaneously reduced the Japanese yen’s haven appeal.
The
positive sentiment following another record setting day on Wall Street carried on for another day with European indices rising at the open, before paring some of their gains by mid-morning. Risk-sensitive currencies rebound while safe-haven yen fell. Investors looked through rising new coronavirus cases in Spain, France and Germany and hoped better treatments and a potential vaccine will help keep deaths low and ensure we won’t see the same type of lockdowns like in March and April. Sentiment was boosted further by data showing Germany, the eurozone’s economic powerhouse, contracted less severely than initially estimated in the second quarter, while a business survey pointed to brightening business optimism.
German economy contracted slightly less in Q2 than expected
The historic German economic contraction was 9.7% in the second quarter, according to revised data from Destatis, some 0.4% better than expected and initially estimated. Meanwhile, the closely watched Ifo Institute survey showed sentiment among business leaders in Germany improved to its best level since February with a reading of 92.6 for August, up from 90.4 recorded in July. However, this was only slightly above expectations, while the research group’s index of expectations was a touch lower than estimated.
EUR/JPY boosted by euro recovery and positive sentiment
The German DAX, which started the new week
with a bang, climbed towards the year’s highs near 13315/20 before easing back a little. Other European indices and US index futures also rose, albeit the gains were limited as investors awaited direction from speeches by central bank heads at the Jackson Hole symposium. The stronger German data and positive sentiment towards risk also boosted the euro, and simultaneously reduced the Japanese yen’s haven appeal. Thus, the EUR/JPY was among the top risers in so far as the major currency pairs are concerned:
Source: TradingView.com and ThinkMarkets
The EJ has broken above its corrective short-term trend following several days of consolidation. The rising trend has therefore resumed, after the bulls were able to successfully defend key support around 124.40 on Friday. With price above short-term resistance in the 125.35-60 range, this area is now going to be the most important short-term support zone that the bulls will need to defend. The next objective is the liquidity resting above the recent high at 126.75. Thereafter, the bulls may aim for the Fibonacci extension levels shown on the chart.