Home Forex EUR/JPY regains 161.00 and approaches multi-week high touched on Friday

EUR/JPY regains 161.00 and approaches multi-week high touched on Friday

by SuperiorInvest


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  • EUR/JPY is attracting fresh buyers on Monday, returning closer to last week's high.
  • Dovish BoJ remarks along with a positive risk tone undercut the JPY and offer support.
  • Expectations of an early shift in BoJ policy and ECB bets on rate cuts are limiting growth.

EUR/JPY is gaining positive traction again on the first day of the new week, climbing back above the 161.00 round during the Asian session. Spot prices remain within range of the more than two-week high reached on Friday and appear poised to extend the recent strengthening move from near the 158.00 mark or the monthly low.

Bank of Japan (BoJ) Vice Governor Shinichi Uchida's dovish remarks last week that aggressive tightening is unlikely even after the end of negative interest rate policy continue to undercut the Japanese Yen (JPY). Furthermore, the generally positive risk tone is further contributing to the relative underperformance of the safe-haven JPY and is proving to be another factor supporting the EUR/JPY cross.

Expectations that Chinese authorities will do more to stimulate the economy, along with easing fears of further escalation of geopolitical tensions in the Middle East, continue to support the recent recovery in risks in global equity markets. Indeed, Israel's military said on Monday it had completed a series of strikes in southern Gaza days after Prime Minister Benjamin Netanyahu rejected a ceasefire proposal by Hamas.

This means that there is a growing agreement that Combat will eventually abandon its ultra-loose monetary policy setting after the outcome of annual wage negotiations in March should help limit the JPY's decline. Furthermore, growing bets that the European Central Bank (ECB) will start cutting interest rates early in the second quarter could prevent bulls from taking new bets around the shared currency and limit the EUR/JPY crossover.

The bets were confirmed by a drop in German inflation, which eased to 3.1% year-on-year in January from 3.8% the previous month. In addition, ECB Governing Council member Fabio Panetta said on Saturday that the moment when the central bank will cut interest rates is fast approaching. Panetta added that early and gradual action could help reduce subsequent volatility in financial markets and the economy.

This, in turn, calls for caution before positioning for any further appreciative move in the event that no relevant economic statements are released on market movement on Monday. Investors are now looking at the first estimate for the fourth quarter GDP growth data from eurozone and Japan, which should be released on Wednesday and Thursday, which in turn should provide fresh impetus for the EUR/JPY cross.

Technical levels to watch

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