EUR/JPY climbs to three-week top, around 172.80 area ahead of Eurozone inflation data

EUR/JPY attracts some buyers for the fourth straight day amid a broadly weaker JPY.
The BoJ rate-hike uncertainty and a positive risk tone weigh on the safe-haven JPY.
Traders now look to the preliminary Eurozone inflation report for a fresh impetus.

Haresh Menghani FXStreet

The EUR/JPY cross prolongs its uptrend for the fourth consecutive day and climbs to a nearly three-week peak, around the 172.75-172.80 region during the Asian session on Tuesday. The intraday move up is exclusively sponsored by the heavily offered tone surrounding the Japanese Yen (JPY) and seems rather unaffected by a modest downtick in the shared currency.

Against the backdrop of the uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ), a positive tone around the Asian equity markets is seen as a key factor undermining demand for the safe-haven JPY. The Euro, on the other hand, is pressured by a modest US Dollar (USD) rebound, though it does little to hinder the EUR/JPY pair's recovery momentum from the vicinity of the 171.00 mark touched last Thursday.

Any meaningful downside for the EUR, however, seems limited on the back of diminishing odds that the European Central Bank (ECB) will lower interest rates in the near term. The expectations were lifted by the higher-than-expected German inflation data for August. The preliminary Eurozone HICP data for August, due for release later today, would offer more cues on inflation in the region, which should provide some impetus to the EUR/JPY cross.

Meanwhile, the growing acceptance that the BoJ will stick to its policy normalization path marks a significant divergence in comparison to a relatively dovish ECB outlook. This, in turn, might keep a lid on any further gains for the EUR/JPY cross and warrants some caution for bulls ahead of the crucial inflation data.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

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