EUR/JPY gains traction above 160.50 amid light trading

• EUR/JPY gains ground near 160.60 in Monday’s Asian session. 
• German inflation rose to 2.6% YoY in July. 
• Middle East geopolitical tensions might support the JPY and cap the cross’s upside. 

The EUR/JPY cross trades firmer around 160.60 on Monday during the Asian trading hours. The softer Japanese Yen (JPY) provides some support to the cross on the day. Trading volumes are likely to be thin for the rest of the day as Japanese markets are closed for Mountain Day.

Data released by the Federal Statistical Office (Destatis) on Friday showed that Germany’s Harmonized Index of Consumer Prices (HICP) increased 2.6% YoY in July, in line with the consensus and the previous reading of 2.6%. The European Central Bank (ECB) is likely to cut more interest rates twice this year. However, ECB President Christine Lagarde said during the press conference that the question of any move in September is wide open, while ECB policymaker Olli Rehn said the central bank can continue cutting interest rates if there is confidence among policymakers that the inflation trend is slowing in the near future. 

Meanwhile, the upside for the cross might be limited as the escalating geopolitical tensions in the Middle East might drag riskier assets like the Euro (EUR). While Hamas proposed a cease-fire implementation plan, ABC News reported that the Israel Defense Forces (IDF) intercepted around 30 "projectiles" entering from Lebanon into northern Israel early Monday. Any signs of rising geopolitical risks could boost safe-haven assets like the JPY and act as a headwind for EUR/JPY.