- EUR/JPY continues to lack significant momentum for a second day on Tuesday.
- The BoJ rate hike uncertainty and hopes for a Russia-Ukraine peace deal undermine the JPY.
- Reduced bets for an immediate ECB rate cut also offer support to the Euro and spot prices.
The EUR/JPY cross extends its sideways consolidative price move for the second straight day and remains confined in a narrow band, above the 172.00 mark through the Asian session on Tuesday.
The recent trade deal between the US and the European Union (EU) eased market concerns about the deflationary impact of tariffs. The stable economic outlook fueled speculations that the European Central Bank (ECB) will keep interest rates steady at least until December, which continues to offer support to the shared currency and the EUR/JPY cross.
The Japanese Yen (JPY), on the other hand, continues with its relative underperformance in the wake of the uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ). Apart from this, hopes for a deal to end the protracted Russia-Ukraine war contribute to the safe-haven JPY’s underperformance and act as a tailwind for the EUR/JPY cross.
Meanwhile, the BoJ upwardly revised its inflation forecast at the end of the July meeting and left the door open for an imminent interest rate hike by the end of this year. This is holding back the JPY from placing aggressive bets and capping the EUR/JPY cross, making it prudent to wait for strong follow-through buying before positioning for additional gains.
Traders now look forward to ECB President Christine Lagarde’s speech on Wednesday for some impetus, though the focus will remain glued to the release of the flash PMI prints on Thursday. In the meantime, the fundamental backdrop suggests that the EUR/JPY cross is likely to extend the range play in the absence of any relevant macro data on Tuesday.
