EUR/JPY Faces Selling Pressure, Reverses Weekly Gains
The EUR/JPY cross experienced some selling on Friday, reversing part of its recent gains to the weekly high. Several factors contributed to this downward movement, including:
- JPY Demand: The emergence of buying around the Japanese Yen exerted downward pressure on the cross, pushing spot prices to fresh daily lows.
- Dovish ECB Bets: Expectations of a rate cut by the European Central Bank (ECB) in October due to easing inflationary pressures and economic slowdown added to the fall in the EUR/JPY cross.
- BoJ Rate Hike Uncertainty: Comments by Bank of Japan (BoJ) officials, including a cautious approach to further interest rate hikes and prioritizing overcoming deflation, also weighed on the currency pair.
Factors Influencing the EUR/JPY Cross
Asahi Noguchi’s remarks on the BoJ’s rate policy, geopolitical tensions in the Middle East, and Eurozone inflation data all played a role in shaping the current market sentiment towards the EUR/JPY cross.
Technical Analysis and Future Prospects
The formation of a ‘Death Cross’ on the daily chart, where the 50-day Simple Moving Average (SMA) crosses below the 200-day SMA, indicates a bearish outlook for the EUR/JPY cross. However, uncertainty surrounding future interest rate hikes by the BoJ may limit aggressive selling and support the currency pair at lower levels.
Bank of Japan FAQs
For readers unfamiliar with the Bank of Japan (BoJ) and its policies, here are some key FAQs:
What is the Role of the Bank of Japan?
The BoJ is Japan’s central bank responsible for setting monetary policy to ensure price stability, with an inflation target of around 2%.
What Monetary Policies has the BoJ Implemented?
The BoJ pursued an ultra-loose monetary policy using Quantitative and Qualitative Easing (QQE) to stimulate the economy and fuel inflation. In 2024, the BoJ lifted interest rates, moving away from its ultra-loose stance.
How Did BoJ’s Policies Impact the Yen?
The BoJ’s stimulus measures led to a depreciation of the Yen against other currencies, with a policy divergence causing further weakening. However, the BoJ’s shift in policy in 2024 reversed some of these trends.
What Effects Did BoJ’s Policies Have on Japanese Inflation?
The BoJ’s policies, along with global factors like energy prices, contributed to an increase in Japanese inflation, surpassing the 2% target.
Overall, the current market dynamics in the EUR/JPY cross reflect a complex interplay of global economic factors, central bank policies, and geopolitical tensions. Understanding these dynamics is crucial for investors and traders looking to navigate the currency markets effectively.