The EUR/JPY cross holds steady around 180.25 during the early European trading hours on Monday. Japan markets are closed for a three-day holiday, leading to low liquidity. Traders remain on high alert for currency intervention from Japanese authorities to prop up the volatile currency.
The Bank of Japan (BoJ) decided to raise its policy rate by 25 basis points (bps) to 1.25%, the highest level since 1995, as widely expected. However, a lack of explicitly hawkish guidance disappointed markets, weighing on the Japanese Yen (JPY) against the Euro (EUR).
Swaps markets have priced in less than 20% for the next policy meeting at the end of October, with 90% odds of a rate increase priced in for the December policy decision.
The Nikkei newspaper reported that Japanese officials conducted rate checks. A rate check involves authorities asking banks for currency quotes to gauge market conditions, which traders view as a precursor to currency intervention.
On the Euro front, European Central Bank (ECB) President Christine Lagarde said that any further interest rate hike by the ECB “will depend on the future.” She added that the central bank would decide “meeting by meeting” what is appropriate, whether that is to hold, increase, or cut interest rates, although cutting rates “is very unlikely at the moment.”
Yen outlook hinges on BoJ guidance as markets price further hikes
Economists at DBS note that markets are already looking beyond the next policy move, with investors having “priced in a second hike in Dec and a third hike by April next year,” leaving the Yen vulnerable if the BoJ underwhelms. They caution that “policy guidance that is not quite as hawkish could see a resumption of JPY selling pressures,” given how much tightening is now embedded in expectations. At the same time, DBS argues that the central bank is “hiking from a position of deeply negative real rates,” and with “inflation pressures in the pipeline due to energy shocks,” it would be “quite a surprise if Governor Ueda does not reinforce a vigilant stance and signal the possibility of more near-term hikes.”
Technical Analysis: EUR/JPY remains capped under the 100-day SMA
In the daily chart, EUR/JPY maintains a bearish near-term tone as spot holds beneath the Bollinger middle band and the 100-day Simple Moving Average (SMA). This positioning suggests rallies remain corrective within a broader topping phase, while the Relative Strength Index (RSI) at about 41.7 stays below the 50 line, hinting at still-subdued bullish momentum despite the recent stabilization off the lows.
On the topside, initial resistance is located at the Bollinger middle band near 181.55, with a stronger cap emerging at the 100-day SMA around 184.18 and the upper Bollinger band close to 187.45 if buyers manage a deeper recovery. On the downside, the next notable support aligns with the lower Bollinger band around 175.60, where a decisive break would open the door to an extension of the current bearish leg.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
