EUR/JPY: climbing hard, despite geo risk aversion, 132 here we come?

Currently, EUR/JPY is trading at 131.09, up 0.17% on the day, having posted a daily high at 131.14 and low at 129.66.

North Korea escalates geopolitical risk - BBH

EUR/JPY is well bid, despite the risk aversion that has been supporting the Japanese safe haven currency, the yen, since the N.Korean tensions blew up yesterday in early Asia. Stocks on Wall Street have bounced and that has caused the yen to weaken, while at the same time, EUR/USD has been a strong performer through the 1.20 handle, meeting supply at 1.2070 today with a recovery in the greenback.

Japan’s Abe: Agreed with Trump to increase pressure on North Korea

The focus, besides geo political concerns around N.Korea, now turns to the crucial 7th September ECB meeting. "Our economists note that the demand for an ECB game plan on tapering is getting stronger by the day; indeed the key arguments in favour of tapering are the successful defeat of the deflation risk, the strong economic recovery and bond scarcity", explained analysts at ING Bank.

"However, we note that the ECB’s preference will be for a cautious tapering, with a very gradual withdrawal of some monetary stimulus that ideally doesn’t cause any tightening of financial conditions. This includes concerns over adding fuel to the EUR rally, which may soon generate negative spill-back effects (in the form of disinflationary pressures mainly) that will warrant some attention from the ECB," argued the strategists at ING.

US military considering deploying strategic military assets to Korean peninsula - RTRS

In respect to the geopolitical anxiety, analysts at Brown Brothers Harriman (BBH) argued that these tend to be intense but short-lived. "That seems to be what the price action of the Korean won and Korean equities is suggesting as well. In the medium and longer-term, the dollar-yen needs higher US interest rates to find better traction," explained the analysts at BBH.

EUR/JPY levels

EUR/JPY has rallied towards the August high that can be seen at 131.40. The next stop may well be a look in at 132.24/45, the August 2015 low and January 2016 high. "Only if an unexpected drop below the 127.57/46 late June and current August lows were to be seen, would we look for slippage to the May high at 125.81," argued strategists at Commerzbank.