The eurodollar traded in a narrow range against the yen despite an unexpected increase in German exports in October and a strong rise in Sentix business confidence in December. The upbeat Q3 GDP growth data from Japan enabled the yen to hold its fort. In the past 24 hours, the EUR/JPY pair traded between 120.05 and 120.17 levels.
In the third quarter, Japan’s economy grew at a faster rate than earlier reported, mainly due to strong domestic demand and an increase in business spending that negated the negative impact of a decline in exports and global trade uncertainty.
GDP grew at an annualized 1.8% in the September quarter, better than the initial reading of 0.2% yearly growth, according to data published in the Asian session by Cabinet Office. The strong growth stamped the fourth successive quarter of economic expansion and also surpassed economists’ forecast for a 0.7% increase.
On a q-o-q basis, the economy grew 0.4% in 3Q 2019, compared with a 0.1% growth forecast in the preliminary reading. Economists had anticipated a third-quarter GDP of 0.2%.
However, going forward, analysts believe that the economy will not be able to sustain the growth recorded in 3Q 2019. Marcel Thieliant, a senior Japan economist at Capital Economics, said: “While Japan’s economy expanded more rapidly ahead of October’s sales tax hike than initially estimated, the output is set to shrink in 2020.”
In a note to clients, the analysts pointed out non-residential investment as the main reason for the unexpected economic expansion. Thieliant wrote, “The main reason for the upward revision was that non-residential investment jumped by 1.8% on-quarter instead of the preliminary estimate of 0.9%.”
In the European session, Destatis stated that the German trade surplus increased to €20.60 billion in October, from €19.20 billion in the earlier month. Economists had anticipated the German trade surplus to decline to €19 billion for the reported period. The exports grew 1.2% on a m-o-m basis in October, contradicting anticipations for a drop of 0.3%. In September, exports grew 1.5%. In the meantime, imports remained flat from September, when it grew 1.2%. Economists had anticipated a 0.1% decline.
On a y-o-y basis, export growth slowed down to 1.9% in October, from 4.6% in the earlier month. At the same time, imports dropped 0.6%, versus a 2.2% increase in the previous month. Correspondingly, the trade surplus rose to €21.50 billion in October, from €18.70 billion in the similar period of 2018.
Another report from Destatis indicated that labor costs increased 0.9% in 3Q 2019, boosting annual growth to 3.1%.
A report published by the behavioral research institute Sentix indicated that the Eurozone investor confidence increased for a second successive month to reach the highest level since May 2019. More importantly, business expectations reached their strongest level in two years, suggesting a retreat of recession fears.
The Sentix business confidence index increased 5.20 points to 0.70 in December. Economists had forecast the figure to decline to -5.3, from -4.50 in November.
The expectations index also rose for the second consecutive month, reach 2.5, from -3.5. It was the highest reading since March 2018. Likewise, the current situation index also increased further to -1, the highest level since July.
The following statement accompanied the Sentix index reading. “The second improvement in a row may be taken as an indication that the specter of a recession has been dispelled in the Euro zone. More and more investors are convinced that the worst is over for the economy in the Euro zone and that impulses from the central bank and politicians will stimulate the economy in the coming months.”
The strong Eurozone economic data and a weak outlook for the Japanese economy, despite the strong Q3 GDP growth, is expected to turn the EUR/JPY pair bullish in the short-term.
Technically, the historical price chart indicates that the EUR/JPY pair is receiving strong support at 119.95. The next major resistance is at 120.79. The moving average of the oscillator is rising with a positive reading. Therefore, we can expect the currency pair to turn bullish in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
