Ella 
In the Asian market, the euro/yen crossed to the 163.20 area before turning negative for the second consecutive day, and further deviated from the more than two-week high hit on Friday near the 163.85-163.90 area. EUR/JPY last fell to multi-day lows near the mid-161.00 range and looks vulnerable to further declines amid a strong recovery in Japanese yen (JPY) demand.
Investors remain concerned about the risk of further escalation of geopolitical tensions in the Middle East, which has prompted some safe-haven flows to the yen and weighed on EUR/JPY. Market concerns increased again after Hamas issued an official statement rejecting the terms of a ceasefire agreement for the release of hostages discussed in Doha last week. This, along with a hawkish outlook from the Bank of Japan, boosted the yen.
Japan’s second-quarter gross domestic product (GDP), released on Thursday, exceeded expectations at both the quarterly and annual rates. In addition, data released on Monday showed that machinery orders in June exceeded expectations, with machinery orders increasing by 2.1% in June 2024. This signals that demand and macroeconomic conditions are improving, which will prompt the Bank of Japan to raise interest rates again later this year.
On the contrary, the market has priced in the possibility of another interest rate cut by the European Central Bank due to falling inflation in the euro area and a bleak economic outlook. This has in turn led to weakness in EUR/JPY and put further pressure on the EUR/JPY cross, which despite a positive risk tone may limit yen movements and help limit further losses in EUR/JPY.
Now, the focus has turned to Thursday’s preliminary Eurozone Purchasing Managers Index, which will provide new signals on the economic health of the region and drive the euro. At the same time, with no relevant market economic data to be released on Monday, yen fluctuations will continue to have a key impact on the EUR/JPY cross.
