EUR/JPY hangs near two-week low, around mid-173.00s ahead of Eurozone inflation data

EUR/JPY struggles to capitalize on modest Asian session gains amid a broadly firmer JPY.
Hawkish BoJ expectations and sustained safe-haven buying continue to underpin the JPY.
Traders now look to the release of the Eurozone HICP for some meaningful opportunities.

Haresh Menghani FXStreet

The EUR/JPY cross attracts fresh sellers following an Asian session uptick to the 174.00 neighborhood and drops back closer to a two-week trough touched earlier this Wednesday. Spot prices currently trade near mid-173.00s and seem vulnerable to prolong the recent rejection slide from the 175.00 psychological mark, or the highest level since July 2024, touched last week.

The Japanese Yen (JPY) continues with its relative outperformance in the wake of hawkish Bank of Japan (BoJ) expectations and turns out to be a key factor weighing on the EUR/JPY cross. In fact, the Summary of Opinions from the BoJ's September policy meeting showed on Tuesday that board members debated the feasibility of raising interest rates in the near term. This reaffirms market bets that the BoJ will stick to its policy normalization path and deliver a 25-basis-point (bps) rate hike in October.

Apart from this, rising geopolitical tensions and the US government shutdown further benefit the JPY's safe-haven status. The shared currency, on the other hand, draws some support from a broadly weaker US Dollar (USD) and acts as a tailwind for the EUR/JPY cross. Traders also seem reluctant to place aggressive bets and opt to wait for the publication of the September Harmonized Index of Consumer Prices (HICP) from the Eurozone before positioning for a firm intraday direction.

The crucial inflation data could shed light on the next steps to be taken by the European Central Bank (ECB), which, in turn, will play a key role in influencing the Euro and provide some meaningful impetus to the EUR/JPY cross. Nevertheless, the BoJ's hawkish outlook still marks a significant divergence in comparison to other major central banks, including the ECB. This, in turn, might continue to drive flows towards the lower-yielding JPY and cap any meaningful appreciation for spot prices.

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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