The EUR/JPY pair exhibited a firm and choppy tone during early European trading on Thursday, with the exchange rate hovering around the 185.60 level. The current market dynamics are primarily shaped by two factors: the European Central Bank's persistent hawkish policy stance and signals from Japan indicating potential intervention in the foreign exchange market. The euro's performance has recently been consistently underpinned by expectations surrounding ECB policy. In response to rising energy costs and re-emerging inflation risks, ECB officials have generally leaned towards maintaining a tight monetary policy. The market anticipates the ECB will further increase its deposit rate at this month's policy meeting and may take additional rate-hiking action again in September.
Market survey results indicate the ECB deposit rate is expected to climb to 2.25%. This expectation is supporting elevated European bond yields while simultaneously enhancing the appeal of euro-denominated assets to international capital. For the foreign exchange market, interest rate levels are a crucial factor influencing capital flows. When European rates continue to rise while Japanese rates remain relatively low, capital tends to flow towards higher-yielding euro assets, thereby driving the EUR/JPY pair higher.
Concurrently, Japanese authorities have shown markedly increased concern over exchange rate fluctuations. Japanese Finance Minister Shunichi Suzuki stated that the government is closely monitoring forex market developments and will take appropriate measures if necessary to counter excessive volatility. He also noted close coordination between the Japanese government and the Bank of Japan on various policy matters. The market widely interprets such statements as typical verbal intervention signals. As the yen continues to depreciate, concerns within the Japanese government over imported inflation and rising energy import costs are mounting, raising the possibility of actual intervention measures in the future.
In reality, the Japanese economy still faces significant external pressures. As a major global energy importer, Japan is highly sensitive to changes in international energy prices. The persistently tense situation in the Middle East and elevated international oil prices are placing higher energy expenditure pressures on Japanese businesses and households. The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments. As tensions between the US and Iran have yet to show significant easing, the market remains alert to the risk of energy supply disruptions, further adding to Japan's imported inflationary pressures.
On another front, the pace of monetary policy adjustment by the Bank of Japan remains relatively cautious. Despite some market participants calling for further rate hikes to stabilize the currency, Japan's economic recovery foundation remains fragile, with limited speed in the recovery of consumption and corporate investment, making it difficult for the BOJ to significantly tighten monetary policy. In contrast, although European economic growth is slowing, inflationary pressures remain above the central bank's target level. Rising energy prices and a tight labor market provide the ECB with reasons to maintain its hawkish stance.
This pronounced divergence in monetary policy has become the core driver pushing the EUR/JPY pair higher. Investors generally believe that as long as the ECB continues to hike rates while the BOJ maintains an accommodative policy, the overall trend for EUR/JPY will remain biased towards strength. However, the market also faces some short-term uncertainties. On one hand, the risk of Japanese government intervention is increasing; on the other hand, developments in US-Iran tensions could still affect global risk appetite and capital flows. Consequently, short-term exchange rate volatility may intensify significantly.
From a daily chart perspective, the EUR/JPY pair maintains an overall oscillating upward trend. The price continues to trade above the 100-day moving average, indicating the medium-term bullish structure remains intact. The current 100-day simple moving average, located near 184.50, represents a key support zone. The middle band of the Bollinger Bands is near 185.20, and the exchange rate trading above this band suggests overall market strength. Regarding technical indicators, the RSI is around 55, showing stable upward momentum without yet entering overbought territory. The MACD indicator remains above the zero line, indicating bullish forces still hold the advantage.
Observing the 4-hour chart, the exchange rate is gradually approaching the area near the upper Bollinger Band around 186.00. A subsequent effective break above 186.00 could open the door for further gains and a challenge of new interim highs. Initial support below lies at 185.00, followed by the 184.50 and 184.00 zones. A break below these support levels could trigger a phase of corrective movement.
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