The EUR/JPY cross experienced renewed buying interest on Tuesday, climbing steadily to the mid-158.00s during the early part of the European session. Despite this upward movement, the current economic landscape suggests caution before concluding that the pair has reached a near-term bottom or is set for a significant recovery from its recent one-month low.
Recent data revealed that Japan’s economic growth for the second quarter was slightly slower than initially reported. This, combined with stable equity markets, has contributed to a weakening of the Japanese Yen (JPY) and supported the EUR/JPY cross. However, the disparity in policy expectations between the European Central Bank (ECB) and the Bank of Japan (BoJ) may limit aggressive bullish strategies and cap further gains.
The ECB is anticipated to lower interest rates at its September meeting on Thursday due to a drop in Eurozone inflation, which fell to its lowest level in over three years in August. Conversely, market expectations are leaning towards a potential interest rate hike by the BoJ before year-end. This divergence suggests that traders should wait for more decisive buying signals before confirming a bottom in the EUR/JPY cross and considering further investment.
Additionally, traders are likely to hold off until the ECB releases its updated economic forecasts, which are expected to significantly impact the Euro’s performance and provide new direction for the EUR/JPY cross. Despite the recent rebound, the prevailing economic conditions appear to favor bearish sentiments, indicating that any upward movement might be short-lived and could present a selling opportunity.
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