The EUR/JPY currency pair has lured in buyers for a second consecutive day. Indeed, it blasted through that important psychological 162.00 level to the upside in Thursday’s Asian session. This increase is a clear response to a multitude of positive economic indicators. Recent moves on US-Japan trade negotiations and widening speculation regarding the ECB’s upcoming interest rate decision lie behind this shift.
The EUR/JPY cross has a tendency to react to the movements of the US Dollar. At the same time, friendly and constructive relations between the United States and Japan help foster a positive environment. Traders are especially interested to see how these ongoing trade negotiations will affect future market conditions. The upbeat tone of these negotiations units a favorable backdrop for further buying interest in EUR/JPY.
That said, the picture for the EUR/JPY cross is a bit more mixed. The duo will face headwinds due to a paltry recovery in the US Dollar. This recent rebound might limit its upward path. Market participants are weighing the implications of rising trade tensions and recession fears, particularly in the context of broader economic conditions.
Apart from these external elements, the much awaited September ECB interest rate decision will determine market expectations at least in the very near term. The ECB will be publishing new economic projections shortly. This will no doubt be the biggest hindrance to EU/JPY cross during the press conference. Climate analysts are eagerly watching these moves. They hope to get some clarity on what to expect from the deep bank of the central bank’s interest rate path in the future.
Second, we should not underestimate the impact of the Bank of Japan’s (BoJ) rate hike bets. The increased acceptance of the BoJ’s plan to eventually raise interest rates—potentially into 2025—complicates this EUR/JPY dynamic further. This new development will go a long way towards shaping market behavior. Market sentiment suggests that any adjustments in Japan’s monetary policy could lead to heightened volatility in currency pair movements, particularly if they diverge from ECB actions.
The US–China trade war continues to roil global markets. The continuation of this tension would add uncertainty, which might affect the EUR/JPY cross. Global investors are understandably on edge per the potential fallout from the escalating tensions between the world’s two largest economies. Such an outcome would likely turn market perceptions against the Euro and Japanese Yen.
Fundamental analysis is equally important when trying to gain better understanding of the EUR/JPY swings. So the pair is now trading just above its 200-day Simple Moving Average (SMA). Traders are eagerly focused on this primary indicator to determine if long-term trends are in place. A lack of progress at these heights might begin to force changes in positioning across the markets.
Market participants are especially attuned to comments from ECB President Christine Lagarde during her press conference following the meeting. Forward guidance on upcoming monetary policy changes or long-term economic conditions can have a profound effect on market expectations. Similar insights can even help drive trading decisions associated with the cross EUR/JPY.