EUR/JPY forecast: ECB cuts by 25 basis points

The market was already pricing a 25bp ECB rate cut at today’s ECB meeting with nearly 100% probability. Lo and behold, the central bank delivered just that. There were no surprises therefore when the rate decision was announced, and the euro hardly reacted. The ECB was never going to disappoint those expectations given the weakening inflation pressures and soft growth cars we have seen from the eurozone. Attention was always going to be on the ECB president Christine Lagarde about the future path of monetary policy. She will begin her press conference shortly. The EUR/USD held near 1.0850, near its lowest level since early August. The other euro crosses were mixed. However, the EUR/JPY forecast hadn’t quite turned bearish yet as it held above a key support and traders watched whether the USD/JPY pair would hold its latest attempt to break the 150.00 in response to a series of US data beats.

Euro likely to remain under pressure

The market’s pricing of ECB cuts points to several more 25bp rate cuts in the upcoming meetings, including in the December. A total of 122 basis point cuts is expected until June next year. Perhaps the market is getting a little ahead of itself. But the pressure is unlikely to be alleviated on the euro any time soon, as we don’t have solid data to justify the ECB diverging from the expected easing path. The US election poses additional risk for the euro, especially if Trump, who has promised more tariffs on the eurozone, wins.

Technical EUR/JPY forecast and trade ideas

Source: TradingView.com

The EUR/JPY has been stuck inside a consolidation zone in the past few days, unable to extend its recent recovery. It has been a similar story for the other JPY crosses too, possibly suggesting that the yen selling is done. Still, we need confirmation that the rally is over and that a new downtrend is upon us. Key support sits in around 162.00 which needs to break decisively before we turn bearish on this pair. If that happens then 160.00 could be the next downside target. The most recent low comes in at 158.10. This level will be pivotal in shaping the longer-term technical picture on this pair. If at some point price breaks below that level, then we could see the onset of a major downward move.

But we will cross that bridge if and when we get there. For now, the technical bias is neutral and the EUR/JPY forecast can easily turn bullish in the event the yen selling resumes.

While the 163.50 level has offered stiff resistance in the last several days, it is the area between 164.00 to 165.10 that look more interesting from a technical standpoint. In this range, you have prior support, the high from last year and the 200-day moving average all converge. So, until this area is now cleared, I would feel somewhat uncomfortable looking for bullish setups on the EUR/JPY.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R