EUR/JPY Remains Below 1-Month Low But Still Above 170.00

The EUR/JPY cross continued its downward trend for the third consecutive day on Tuesday, even though it managed to hold above the psychological 170.00 level, a near one-month low hit last week.

Expectations that the Bank of Japan may raise interest rates again at its upcoming policy meeting and suspected intervention measures by Japanese authorities to support the currency continue to provide support for the Japanese yen (JPY). In addition, the uncertainty in the US political situation has also prompted some safe-haven flows to the yen, becoming a key factor in the downward pressure on the EUR/JPY cross.

Meanwhile, the ECB lowered its expectations for the eurozone economic outlook and predicted that inflation will continue to decline, opening the door to a rate cut in September. This has led to relative weakness in the euro and the EUR/JPY remains bearish, but a combination of factors may help prevent the EUR/JPY from falling further.

The dovish Fed expectations have put the US dollar bulls on the defensive, which is beneficial to the euro. In addition, the generally positive risk sentiment may prevent the yen from rising further and provide some support for the EUR/JPY cross. Therefore, it would be prudent to wait for support below the 170.00 mark before taking a position on the recent pullback from the highest level since 1992.

For now, the market focus has turned to the latest Purchasing Managers Index (PMI) released on Wednesday, which will provide a new perspective on the health of the global economy. This coupled with the widening risk sentiment will affect the demand for the safe-haven yen and provide some notable thrust to the EUR/JPY cross.

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