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IPC Index — Mexico Market
- EUR/JPY surrenders a major part of Asian session gains, though the downside seems limited.
- Hopes for a US-Japan trade deal and BoJ rate hike bets underpin the JPY, capping the cross.
- The risk-on impulse acts as a headwind for the safe-haven JPY and could support spot prices.
The EUR/JPY cross struggles to capitalize on its modest Asian session gains and attracts some intraday sellers in the vicinity of mid-162.00s on Wednesday. Spot prices retreat to the lower end of the daily range, around the 161.80-161.75 area in the last hour, stalling the overnight bounce from sub-161.00 levels or a nearly two-week low.
Despite mixed PMI data from Japan, hopes that Japan will strike a trade deal with the US, along with expectations that the Bank of Japan (BoJ) will continue raising interest rates, underpin the Japanese Yen (JPY) and cap the EUR/JPY cross. In fact, reports indicated that the BoJ is planning to signal next week that there is almost no need to change its basic stance on raising interest rates as the impact of increased US tariffs will not disrupt the ongoing cycle of wage growth and inflation.
This marks a big divergence in comparison to the European Central Bank’s (ECB) dovish decision last week, which along with a modest US Dollar (USD) uptick, is seen weighing on the shared currency and acting as a headwind for the EUR/JPY cross. The ECB lowered interest rates for the seventh time in a year last Thursday and warned that economic growth will take a big hit from US tariffs. This, in turn, bolstered the case for further policy easing by the ECB in the months ahead.
Meanwhile, the optimism fueled by easing US-China trade tensions remains supportive of the risk-on impulse. This might hold back traders from placing aggressive bullish bets around the safe-haven JPY and lend some support to the EUR/JPY cross. Even from a technical perspective, the range-bound price action witnessed over the past two weeks or so warrants some caution before positioning for a firm near-term direction. Traders now look to the flash Eurozone PMIs for a fresh impetus.
