The EUR/JPY pair has increased by 0.45% to 162.60 during European trading, hitting a high of 163.00. This rise comes as trade tensions between the US and the EU have eased, with President Trump delaying a proposed 50% tariff until July 9. US-EU trade discussions are ongoing after the EU asked for more time to negotiate a favorable deal by July 9. President Ursula Von der Leyen expressed hope for the talks with Trump, highlighting the EU’s readiness to move forward.

Effect of Germany’s GDP Data

The Euro received additional support from Germany’s first-quarter GDP data, revised to show a 0.4% growth, surpassing initial estimates of 0.2%. Meanwhile, the Yen is losing value, even though Japan reported a National CPI growth of 3.6% in April, which was faster than expected. In local markets, the Japanese Yen has weakened against major currencies, performing the worst against the New Zealand Dollar. The change in CPI numbers raises the possibility of an interest rate hike by the Bank of Japan in July. The Euro plays a crucial role for the 19 countries in the Eurozone, influencing trade balances and interest rates through the European Central Bank (ECB). Key economic indicators like GDP and inflation greatly affect the Euro’s value. Building on these developments, the EUR/JPY pair is currently favored by buyers, with the move toward 163.00 suggesting market participants are leaning toward the Euro in the short term. The postponement of a significant import tariff by the U.S. until early July gives markets some relief. For now, there’s reassurance that immediate disruptions to transatlantic trade have been delayed, if not eliminated. The new timeline offers just over a month of relative stability, which traders are starting to factor in.

Impact of Trade Talks and Monetary Policies

Von der Leyen’s positivity has given the Euro more room to grow, especially as her comments show both sides’ willingness to avoid further conflict. Importantly, not only is there a cooperative tone, but the timeline is also key—markets prefer predictability, and the temporary delay suggests better chances for a negotiated resolution. Any sign of progress in these trade talks could further strengthen this trend. Germany’s Q1 GDP boost to 0.4% also provides solid support for the Euro. While the difference between 0.2% and 0.4% growth may seem small, it doubles the previous estimate under current conditions. Since Germany is influential in ECB policy, stronger economic performance could lead to more discussions about normalization in Frankfurt, reducing hesitancy around tightening. Conversely, the Japanese Yen faces opposing forces. April’s national inflation was 3.6%, which should normally support the currency. However, the Yen continues to weaken due to market expectations. Despite the CPI exceeding forecasts, there’s doubt that the Bank of Japan will act quickly or decisively enough to narrow the yield gap with other currencies. Investors are focused on the July meeting, but without a change in tone or pace from Governor Ueda, interest rate differentials will keep putting pressure on the Yen. This Yen weakness isn’t just seen in EUR/JPY; it’s also noticeable against higher-yielding currencies like the New Zealand Dollar. This reflects ongoing carry flows and a narrative where the Bank of Japan seems hesitant to reduce its accommodative stance as quickly as others. The situation is not just about inflation—it also concerns the credibility and timing of future guidance. For those trading derivatives, current movements show a clear direction, but it’s not straightforward. We must analyze how options volatility responds to trade timelines and monetary policy expectations. Implied volatilities on EUR/JPY have remained fairly stable, suggesting the market is anticipating a gradual trend rather than a sharp reversal. However, if political headlines or hawkish signals from the ECB emerge, hedging costs may rise. As we approach July, traders may continue to prefer Euro longs over Yen, assuming no significant changes from Ueda or a quick rise in European inflation. If speculation about a BoJ rate hike gains momentum, shorter expiration options will react quickly as traders adjust their expectations. For now, though, the divergence story remains intact, and the options flow reflects this trend. Some traders are favoring call spreads into next month, focusing on strikes between 163.50 and 165.00, aligning with recent technical patterns. We are closely monitoring the intersection of macroeconomic data and event-driven decisions. This is all happening in a compact six-week timeframe, and markets are not known for their patience. With each data release or political remark, recalibrations start anew. Traders with exposure tied to volatility or directional swings should maintain focus on timing rather than just price levels. Create your live VT Markets account and start trading now.

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