EUR/JPY Euro Set to Rise on a Positive Outlook for the German Economy :

The Euro is deemed to maintain its strength alongside the Japanese yen today on additional positive signs that Germany is gathering speed again after contracting in the fourth quarter, boosting prospects for the 17-nation bloc. An upbeat consumer confidence report is estimated to follow buoyant business sentiment and activity gauges released last week. Meanwhile, the Yen is seen to remain under pressure after Japanese Prime Minister Shinzo Abe piled further pressure on the Bank of Japan to end nagging deflation.

In its monthly report published yesterday, Germany’s Bundesbank said that the German economy is already showing signs of picking up after contracting in Q4 of 2012. Europe’s largest economy expanded by a modest 0.7 percent last year, and officials project that it shrank by around 0.5 percent in the December quarter. Nonetheless, the bank notes that business confidence has brightened, export prospects have improved, and the labor market remains stable. Indeed, data last week have suggested that Germany is benefiting from the recent improvement in financial markets, likely allowing it to resume growth in the current quarter and avoid recession.

The German ZEW Economic Sentiment jumped to its highest level since 2010 in January while business confidence as reported by the Ifo institute climbed to its best reading since June last year. Such improvements in business sentiment are translating into more robust activity among German firms. Business activity surged to its fastest rate of growth in a year in January. Markit said that the composite Purchasing Managers’ Index for the nation rose from 50.3 points to 53.6 points as output rose more than expected. Today, GfK is awaited to disclose that even German consumers are feeling optimistic. The GfK German Consumer Climate index is estimated to rise from 5.6 to 5.8 points this month, suggesting consumer spending is also likely to provide a boost to economic growth this quarter. On continuing signs of improvement in the Euro Zone economy, the single currency is apt to rise.

Meanwhile in Japan, Prime Minister Shinzo Abe urged the Bank of Japan to achieve its inflation target of 2 percent as soon as possible to overcome what he called an economic crisis in his first speech to parliament yesterday. With expectations of more bold action on the way, the Yen remains vulnerable. As such, a long position is advised for the EUR/JPY today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.