Trade agreement hopes strengthen the Euro against the Yen amid upcoming tariff talks

    by VT Markets
    /
    Jul 8, 2025
    The Euro is gaining strength against the Japanese Yen, trading around 171.10. This marks a 0.58% increase, reaching its highest level in almost a year. Positive sentiment stems from talks of a US-EU trade deal and a rise in German Industrial Production, which increased by 1.2% in May compared to the previous month. In the Eurozone, retail sales fell by 0.7% in May, which matched predictions. However, the annual growth rate hit 1.8%, surpassing expectations. Additionally, Sentix Investor Confidence rose to 4.5, signaling better sentiment in the region.

    Trump’s Tariff Announcement

    US President Donald Trump announced a 25% tariff on all imports from Japan, effective in August. While negotiations continue, no agreements have been reached between the US and Japan or the European Union. From a technical standpoint, EUR/JPY is supported by moving averages. The Relative Strength Index suggests a potential pullback. Resistance levels are at 171.30 and 173.00, while support levels are around 170.00 and the 61.8% retracement at 167.40. Tariffs, unlike regular taxes, are prepaid by importers when goods enter the country to protect domestic industries. The Euro’s rise against the Yen, now at levels not seen in almost a year, shows short-term confidence in the currency. This confidence is partly due to stronger economic signals from Germany, where industrial output rose by 1.2% in May. Although this monthly gain isn’t huge on its own, it indicates that Germany’s economy is resilient, especially after a period of weaker manufacturing data. Retail sales in the Eurozone did decline in May, which may raise concerns, but the overall picture shows better-than-expected annual growth and increased investor sentiment, as indicated by a higher Sentix reading. This mixed data can lead to overreactions in short-term trading, but the positive forward-looking sentiment should not be ignored. It may signal fading consumer momentum countered by growing optimism about future conditions.

    Implications of Tariff Announcements

    The tariff announcement marks a significant change. A blanket 25% tariff on Japanese imports creates pricing distortions that earlier forecasts did not account for. Although discussions with partners in the US continue, the absence of a finalized deal poses risks for those invested in trade-related currencies. Remember, tariffs work differently from taxes; they preload costs that may reflect in prices before consumer or producer behaviors change. The current chart setup indicates a market leaning towards optimism. Prices are supported by moving averages, which often lead to short-term upward movements if economic conditions remain favorable. However, the overbought reading on the RSI serves as a warning against jumping into breakouts without confirmation. We might encounter resistance around 171.30, which aligns with recent highs, and again near 173.00, a level that might prompt profit-taking. If prices do pull back, look for support around 170.00, followed by the Fibonacci level close to 167.40, where buyers have previously entered the market. We believe that these indicators—economic surprises, policy updates, and technical levels—suggest a tactical positioning approach in the near term. While momentum is still present, it is not without challenges. Those managing leverage or exposure should closely monitor sensitivity levels and implied volatility in related options as geopolitical risks adjust. Finally, without clear trade resolutions, the risk pricing landscape is currently distorted. Movements in correlated assets could be more volatile or less rational than expected. Each headline has the potential to disrupt technical setups, so it is essential to consider reaction speed and access to liquidity as much as broader market trends. Create your live VT Markets account and start trading now.

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