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The EUR/JPY advances modestly on Tuesday, and buyers recover the psychological 160.00 figure. Solid GDP data from the Euro area, along with lower-than-expected inflation data in Japan, eases the pressure off the Bank of Japan (BoJ) to end its ultra-loose policy. At the time of writing, the pair exchanges hands at 160.08, after hitting a daily low of 159.21.
The pair is neutral biased as the daily chat portrays. But, the recent fundamental news, along with an improvement in risk appetite, could pave the way to test resistance at the Tenkan-Sen at 160.54. A decisive break could sponsor a leg-up to the 161.00 mark before buyers step in and lift the exchange rate toward January’s 19 high at 161.87. Further upside is seen at 162.00.
Conversely, if EUR/JPY sellers’ step in and prevent a daily close above 160.00, that would exacerbate a leg-down. The first support would be a seven-month-old support trendline at around 159.50 – 159.70, also a confluence with the Senkou Span A at 159.50. Once that area is cleared, expect a drop to 159.00, before diving to the Senkou Span B at 158.47.
The EUR/JPY discovers buying interest near 159.20 as the Eurostat has reported better-than-anticipated Gross Domestic Product (GDP) data for the last quarter of 2023. The agency has reported that the Eurozone economy remained stagnant against expectations and the prior reading of a 0.1% de-growth in GDP figures.
On an annualized basis, the Eurozone economy grew slightly by 0.1% while investors anticipated a stagnant performance. This indicates that the economy has managed to avoid a technical recession. It would allow the European Central Bank (ECB) to hold the Main Refinancing Operations Rate at 4.5% for a longer period.
Meanwhile, investors keen to know when the ECB will start reducing interest rates. ECB President Christine Lagarde said earlier that inflation is higher than what the ECB want and rate-cuts could start by late Summer. ECB policymaker Mario Centeno argued that the central bank should start cutting rate sooner than later, while avoiding abrupt moves. On the contrary, ECB Governing Council member Peter Kazimir said that a rate cut in June is more likely than April.
On the Tokyo front, investors await the Bank of Japan’s (BoJ) Summary of Opinions (SOP), which will be released on Wednesday. Investors will keenly focus on signals about an exit from the decade-long ultra-loose monetary policy.
BoJ Governor Kazuo Ueda seems reluctant in policy normalization as wage growth is insufficient to keep price pressures above the required rate of 2%.
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