EUR/JPY trades around 157.00, trims losses following PMI data

• EUR/JPY pares daily losses following the economic data from Europe.
• Eurozone Composite Purchasing Managers Index rose to 50.2 in July, slightly above the expected 50.1 reading.
• The JPY receives support from safe-haven flows due to escalated geopolitical tensions in the Middle East.

EUR/JPY extends its losing streak for the sixth successive day, trading around 156.90 during the early European session on Monday. However, the EUR/JPY cross trims its intraday losses following the release of the Eurozone Producer Price Index (PPI) and the German Purchasing Managers' Index (PMI) data.

HCOB Eurozone Composite Purchasing Managers Index (PMI) increased to 50.2 in July, slightly above the expected 50.1 reading. Germany’s Composite PMI came in at 49.1, as compared to expected and previous 48.7 readings. Services PMI rose to 52.5 against the expected and 52.0 prior.

In Europe, traders anticipate at least two additional rate cuts by the European Central Bank (ECB) in 2024, with the next likely occurring in September. ECB policymaker Yannis Stournaras mentioned in a Thursday interview that the weak eurozone economy might push inflation below the ECB's 2% target, reinforcing his prediction of two interest rate reductions this year, according to Reuters.

The Japanese Yen (JPY) gains ground due to rising expectations of the Bank of Japan (BoJ) tightening monetary policy further, which could provide continued support for the JPY in the near term.

The minutes from the Bank of Japan's June meeting showed that some members voiced concerns about rising import prices due to the recent decline in the JPY, which could present an upside risk to inflation. One member highlighted that cost-push inflation might exacerbate underlying inflation if it leads to higher inflation expectations and wage increases.

Additionally, safe-haven flows provide support for the JPY while putting downward pressure on the EUR/JPY cross, a trend that can be linked to increased geopolitical tensions in the Middle East. On Sunday, an Israeli airstrike hit two schools, causing at least 30 casualties, as reported by Reuters. Furthermore, US Secretary of State Tony Blinken suggested that Iran and Hezbollah might be preparing to launch an attack against Israel as soon as Monday, according to information from three sources briefed on the call, as reported by Axios.