EUR/JPY: Euro Seen to Gain as Investor Surveys Deemed to Offer Hope

The Euro is deemed to regain its strength opposite the Japanese yen today as the ZEW reports due today are deemed to underscore improving prospects for the Euro Zone economy as it attempts to emerge out of its recession. Likewise, hopes are high that the newly-appointed Eurogroup chief will be able to deliver to its commitment to restore the region back to financial stability. Meanwhile, the Bank of Japan’s move to adopt a 2 percent inflation target earlier is deemed to weaken the Yen.

In a report that could remove recent gloom hanging over the German economy, the German ZEW Economic Sentiment report for January is apt to suggest that investor sentiment improved to its highest level in nine months. The index is estimated to rise from 6.9 points to 12.2 points this month, potentially registering its highest reading since April 2012. After showing resilience during the first two years of the crisis, the German economy shrank in Q4 of 2012 to post its worst quarterly performance in nearly three years as traditionally strong exports and investment slowed. Nonetheless, the improvement in sentiment signifies that Europe’s paymaster will likely return to growth this quarter and avert a recession. Meanwhile, sentiment for the entire Euro region is also believed to have improved considerably, this time to its highest reading since April 2011. The ZEW Economic Sentiment is seen to rise from 7.6 points to 14.1 points. Recent strides in Europe’s crisis fight and reduced turmoil in the financial markets likely resulted into brighter prospects for the economy.

Dutch Finance Minister Jeroen Dijsselbloem was appointed the new chairman of Euro Zone finance ministers yesterday. Dijsselbloem told his colleagues that he wanted to rebalance focus from simply fighting the crisis toward longer-term policies to establish confidence in the region. Addressing concerns of tougher times ahead, he said fiscal discipline and financial help between the nations were not mutually exclusive. Further, he expressed that policies in the region had to be focused on restoring sustainable growth, for which sound fiscal policy was indispensable. In a letter, he told colleagues that he plans to keep the momentum going by retaining the confidence in a lasting manner.

Meanwhile, the Japanese yen is deemed to decline today as the Bank of Japan succumbed to pressure and unveiled bolder steps to revive the ailing Japanese economy. The BOJ doubled its inflation target to 2 percent and made an open-ended commitment to buy assets from next year. Starting 2014, the central bank would switch to an open-ended approach of buying a certain amount of assets each month without setting a deadline for completing the purchases. Considering these, a long position is advised for the EUR/JPY today.

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