EUR/JPY appreciates to 142.00 as risk aversion eases

• The euro reaches levels past 142.00 after boucing up at 140.95.
• A brighter market mood is easing selling pressure on the euro.
• EUR/JPY expected to trend lower over the next months – ING.

The euro found support at 140.95 low earlier on Tuesday and is picking up during the North American session, to hit intra-day highs right above 142.00, favoured by a moderately brighter market mood moderately.

The euro pares losses after a four-day decline

The common currency has regained some ground on Tuesday, with the pair 0.5% up on the day, following a four-day losing streak. The brighter market sentiment, with US stock markets shifting into positive territory, has weighed on safe-haven assets as the yen, easing negative pressure on the euro.

In absence of first-tier macroeconomic figures, the Japanese yen remains is on the back foot amid the monetary policy differential between the US Federal Reserve and the Bank of Japan.

The US Central Bank has increased up borrowing cost from nearly 0% to a range of 3.00% - 3.25% and the market is pricing in another aggressive rate hike in November. The BoJ, meanwhile, is lagging behind the other major central banks, sticking to its ultra-expansive monetary policy, which is hurting the yen.

On the other hand, the euro remains unable to capitalize yen weakness. Market concerns about the impact of the escalation in the Ukrainian war and the high energy prices on eurozone’s economic prospects are adding negative pressure on the common currency.

EUR/JPY moving lower over the next months – ING

From a longer-term perspective, currency analysts at ING see the pair capped below 145.00: “Our bias would be that EUR/JPY struggles to sustain a break above the 145 level in an environment where central banks are actively looking to slow aggregate demand (…) Typically, the Japanese have been more interventionist than the eurozone and on that basis – and given the forthcoming eurozone recession – EUR/JPY risks look skewed lower the next six months.”

Technical levels to watch