The eurodollar fell against the yen yesterday after news reports indicated that the economy grew at a slower pace in Q2 2019, while inflation stood at a 17-month low. The yen, on the contrary, strengthened on an increase in demand for safe-haven assets after President Trump played down the possibility of a resolution to the trade dispute in the latest round of talks between the US and China. From a high of 121.18, the EUR/JPY pair declined to a low of 120.40 in the past 24 hours.
In the second quarter, the Eurozone expanded at a slower rate, and inflation moderated to a 17-month low in July, backing the ECB’s (European Central Bank) stance that the common currency economy requires considerable stimulus as the outlook is turning “worse and worse.” The second-quarter GDP grew 0.2%, in line with analysts’ expectations but below the 0.4% growth recorded in the earlier quarter.
On a y-o-y basis, the preliminary data indicated that economic growth decreased slightly to 1.1% in July, from 1.2% in the earlier month. Analysts were expecting an annual growth rate of at least 1%. The revised data is scheduled to be released on August 14th.
Similar to the GDP data, the inflation figures were not impressive. In July, Eurozone inflation fell to 1.1%, from 1.3% in the earlier month. Notably, in February 2018, a similar lower rate was recorded.
Core inflation, which removes the impact of volatile goods such as food, energy, tobacco, and alcohol, declined to 0.9% in July, from 1.10% in the previous month. Economists had anticipated core inflation of 1% for July.
As US-China trade negotiations commenced in Shanghai on Tuesday, President Trump expressed pessimism on the possibility of an agreement before the 2020 election.
US President Donald Trump issued a gloomy statement on trade talks with China. The President said, “I think the biggest problem to a trade deal is China would love to wait and just hope. They hope — it’s not going to happen, I hope, but they would just love if I got defeated so they could deal with somebody like Elizabeth Warren or Sleepy Joe Biden or any of these people because then they’d be allowed and able to continue to rip off our country like they’ve been doing for the last 30 years.”
Trump’s comments came as top negotiators from both sides were having dinner together at the Fairmont Peace hotel. During his visit to Japan, Trump stated that he had accepted to postpone tariffs on roughly $300 billion worth of goods from China and permit the US firms to continue selling critical components to the Chinese telecom company Huawei.
Trump further stated that China would start importing a huge quantity of food and agro products in return for relaxation. However, China is yet to begin purchasing food products from the US.
In fact, both sides have started talking sternly, and economists believe that a breakthrough on disagreements over China’s tech policy and trade surplus will not happen anytime soon. The uncertainty is encouraging investors to look for safe-haven assets such as the yen.
The weak Eurozone GDP growth data and unresolved US-China trade war are anticipated to keep the EUR/JPY pair bearish in the short-term.
The historic price chart indicates that the currency pair has broken below its 50-day moving average. Additionally, the EUR/JPY pair is also facing resistance at 121.80. The oscillator of the moving average also has a negative reading. As a result, we can expect the currency pair to move down in the short-term.
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