EUR/JPY saw a downward trend on Wednesday as fresh sellers entered the market, pushing the cross to over a one-month low around the 168.35-168.30 area. This decline is attributed to the rise in buying around the Japanese Yen (JPY), supported by a suspected intervention by Japanese authorities and expectations of a rate hike by the Bank of Japan (BoJ). The BoJ’s potential policy move was reinforced by comments from a ruling Liberal Democratic Party official advocating for a normalization of monetary policy through interest rate hikes.
In addition to the JPY’s strength, a softer global risk sentiment has also contributed to the downward pressure on the EUR/JPY cross. Weakness in global equity markets has led investors to seek safe-haven assets like the JPY, further undermining the Euro. The ECB’s pessimistic outlook on the Eurozone’s economic prospects and inflation expectations has also weighed on the shared currency, keeping the possibility of a rate cut in September on the table.
Following the sustained breach of the 170.00 psychological level, bearish sentiment prevails in the EUR/JPY market, suggesting a potential further decline below the 168.00 mark towards the 100-day Simple Moving Average (SMA) support near 167.80 and the mid-167.00s or even the June monthly swing low. Meanwhile, economic data such as the au Jibun Bank flash PMI indicating a contraction in Japanese manufacturing activity in July had limited impact on the EUR/JPY cross, with market focus shifting to the upcoming flash Eurozone PMIs for trading opportunities.
Looking ahead, continued JPY strength and a subdued global risk sentiment could maintain the downward pressure on the EUR/JPY cross. Traders will closely monitor any further comments or actions from Japanese authorities regarding monetary policy normalization and the upcoming BoJ meeting for potential market-moving developments. Additionally, any surprises in the flash Eurozone PMIs could provide short-term trading opportunities for investors in the EUR/JPY pair.