Yen rises amid escalating tensions between N.Korea & US

August 10, 2017
Yen rises amid escalating tensions between N.Korea & US August 17, 2018 Riya Joshi

On the basis of an upwardly revised Euro Zone outlook issued by the IMF, we had predicted a Euro dollar rally against the Yen. The Bank of Japan’s postponement of 2% inflation target time also influenced our decision. We had evinced our interest in going long in the EUR/JPY pair near 129.80 in the currency market.

Furthermore, we had also expressed our desire to invest in a call option. In a week, the pair hit 1.3150 levels and ensured a profit in both the trades. Now, due to reasons given below, the EUR/JPY pair, which has lost all its gains in the past two trading sessions, is expected to decline further from the current level of 129.

According to the North Korean State-run news agency KCNA, the North Korean People’s Army is considering a missile strike on the US bases at Guam. The news is basically a retaliatory statement issued by the spokesperson of the Korean People’s Army in return to the warning issued by the US President Donald Trump. Earlier on Tuesday, Trump had warned North Korea that any threat to the US would be met with ‘fire and fury’. Whenever there is any geopolitical uncertainty, investors would immediately look out for safe haven assets such as the Yen to safeguard their wealth.

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The lack of liquidity in the Forex market due to a holiday in Singapore, and upcoming public holiday on Friday in Japan is also aiding the strengthening of the Yen. The recent job data from Japan also indicate an improvement in the economic situation. According to the Ministry of Labor, the unemployment rate declined to a 23-year low of 2.8% in June, from 3.1% in the previous month, and better than 3% anticipated by analysts.

Germany, which is considered to be the backbone of the Eurozone economy, surprised analysts by reporting a decline in exports by 2.8% to €107 billion in June. It is the first decline reported in 2017. Earlier on Monday, the German Economics Ministry had reported a 1.1% decline in the industrial output. The strengthening of the Euro dollar seems to have a negative impact on the exports. If that is the case, then ECB would not contemplate on normalization of rates, any time soon. Thus, geopolitical uncertainty and strong economic data favor strengthening of the Yen against the Euro in the short-term.

The EUR/JPY pair has broken the support at 130.20. Furthermore, the pair has also violated the ascending trend line. The weakness is also confirmed by the MACD indicator which is moving below the zero line. Thus, we can expect a continuation of the current downtrend.

EUR/JPY Pair: August 10th 2017

EUR/JPY Pair: August 10th 2017

To capitalize on the decline, we wish to go short in the EUR/JPY pair near 129.60, with an order to limit loss at 130.60. An order to book profit will be placed at 127.80. By investing in a put option, we wish to take full advantage of the forecasted downtrend. A strike price of about 129.60 is preferred for the trade. Additionally, the option should be valid for a period of one week.

About the Author

Riya Joshi

Riya Joshi Editor

Riya will providing you an insight in today's forex markets , which currencies are performing well and which ones look to be on the way down.

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