Last week the Euro displayed strength against various currencies following the European Central Bank’s (ECB) 25 bps rate hike and the announcement regarding its monetary policy. This pair rose by approximately 1.25% to increase to 153.55, reaching its highest point in 15 years. This remarkable achievement is notable for the common currency.
The move witnessed during that day, followed by a similar 200 pip move on Friday can be partially attributed to the ECB’s actions. The central bank brought the deposit facility rate to 3.50% from 3.25% previously to a level that has not been seen in almost two decades. Besides that, the ECB revised its inflation forecasts for the years 2023, 2024, and 2025, increasing them by one-tenth of a percent to 5.4%, 3.0%, and 2.2%, respectively.
EUR/JPY was retreating at the end of May, as JPY buyers returned, but the 200 SMA (gray) was acting as support on the daily chart. This is the smallest moving average and it shows that the bullish trend is quite strong on this pair, so we are looking to buy the pullbacks lower, with fundamentals remaining bullish, both on the Bank of Japan side, as well as on the ECB side. We are following the smaller timeframe charts and will try to buy when the retreat is over. The H4 chart is where we are looking, but at the same time, we will observe USD/JPY as well.
Regarding the future policy outlook, ECB President Christine Lagarde stated that there is still progress to be made in achieving price stability. She also mentioned that policymakers are highly likely to implement another interest rate hike at the July meeting, given that the Consumer Price Index (CPI) is projected to remain elevated for an extended period. This guidance led to a reassessment of the hiking cycle in a hawkish manner, with swaps assigning an 80% probability of rates reaching 4% by October.
EUR/JPY Live Chart
EUR/JPY
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