EUR/JPY Holds Steady at 172.65 as Markets Balance ECB Hawkishness Against BoJ Hike Potential

The Euro maintained modest gains against the Japanese Yen during North American trading hours, edging up 0.10% after the European Central Bank’s expected rate hold. I watched the pair climb to 173.06 following some surprisingly hawkish comments from ECB President Lagarde, before settling back around 172.65.

Lagarde Signals End of Disinflation While BoJ Speculation Caps Gains

The ECB maintained its 2% Deposit Rate with the Governing Council emphasizing their meeting-by-meeting approach rather than committing to any predetermined path. Lagarde didn’t mince words, declaring the “disinflationary process is over” while noting policy is “in a good place” with unanimous backing from the council. She pointed to diminished trade uncertainty but warned of downside risks to economic growth.

Meanwhile in Japan, political chaos erupted with PM Ishiba’s resignation, initially weakening the Yen. Yet rumors that the BoJ might raise rates before year-end quickly reversed this trend, sending EUR/JPY tumbling from 173.50s toward 172.10.

I’m struck by BoJ Governor Ueda’s increasingly hawkish tone last week. He practically telegraphed rate increases if Japan’s growth and inflation align with the bank’s outlook. Current market pricing reflects this uncertainty - a 62% probability of rates holding at 0.50% versus a 38% chance of a hike to 0.75%.

Technical Outlook: Struggling Below 173.00

Trading near weekly lows, EUR/JPY has bounced off the 20-day SMA (172.29) but can’t seem to decisively break through 173.00. If sellers push below 172.00, we’re looking at potential drops to August’s low of 171.12. The RSI remains technically bullish but signals a likely retracement coming.

Should buyers regain control and push above 173.00, the September 8 high of 173.91 becomes the next target.

Euro Performance This Week

The Euro showed mixed results against major currencies this week, performing strongest against the Canadian Dollar while losing ground against most others. Currency heat map shows percentage changes between major pairs, with EUR/USD down 0.23%, EUR/GBP down 0.24%, and EUR/JPY down 0.45%.

Disclaimer: For information purposes only. Past performance doesn’t predict future results.