The EUR/JPY cross has gained momentum for the third consecutive day, reaching a three-and-a-half-week high in the early European session, trading around the 161.55-161.60 mark—up over 0.25% for the day. This bullish trend is supported by a generally positive sentiment in equity markets, which has weakened the Japanese Yen (JPY), particularly as Japan faces political uncertainty with the ruling Liberal Democratic Party (LDP) set to elect a new president to succeed outgoing Prime Minister Fumio Kishida.
However, upside potential for the EUR/JPY pair may be limited by a modest pullback in the Euro, as recent disappointing Eurozone macroeconomic data strengthens the case for a possible 25 basis point interest rate cut by the European Central Bank (ECB) at its upcoming meeting. This contrasts sharply with expectations for a rate hike from the Bank of Japan (BoJ), which has led investors to anticipate a tightening of monetary policy by year-end.
Recent BoJ meeting minutes revealed a consensus among board members on the necessity to monitor inflation risks, hinting at a potential adjustment of monetary support, which adds caution for EUR/JPY bulls. Technically, the recent crossover of the 50-day Simple Moving Average (SMA) below the 200-day SMA has formed a bearish ‘Death Cross,’ suggesting the need for strong follow-through buying before further upward movement can be confidently pursued.
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