EUR/JPY nudges higher in Friday’s Asian session, hovering at the 173.00 level, with limited follow-through buying. Despite this, spot prices are poised to close in the green for the first time in three weeks, reflecting a positive bias in the market. Traders remain cautious, as EUR/JPY continues to trade below the one-month high reached earlier this week. 

Market participants are now focused on the upcoming revised Eurozone Q2 GDP print, which could provide short-term trading opportunities. In this article, LevaQuant’s broker Mark Soler unpacks the complexities of the topic step by step.

Positive Bias Amid ECB Rate Expectations

The EUR/JPY pair retains its upside momentum amid expectations that the European Central Bank (ECB) will keep interest rates unchanged in the near term. Recent Eurozone inflation data for August showed prices edging up and remaining close to the ECB’s 2% target, reinforcing the view that the ECB’s monetary policy stance is unlikely to tighten further.

ECB board member Isabel Schnabel highlighted that policy is mildly accommodative, indicating no immediate need for further rate cuts. Similarly, Governing Council member Gediminas Šimkus stated that there is no reason to adjust rates at present. 

This stable policy outlook continues to provide a tailwind for the Euro, lending support to the EUR/JPY cross. A softer US Dollar (USD) also benefits the Euro, adding further upside potential for the pair.

Japanese Yen Supported by Domestic Data

The Japanese Yen (JPY) draws support from strong domestic fundamentals. Recent data revealed that real wages in Japan turned positive for the first time in seven months, signaling improving consumer income dynamics. 

In addition, household spending in July increased, albeit at a slower pace, pointing to the Bank of Japan’s (BoJ) commitment to its policy normalization path.

These fundamentals cap the upside for EUR/JPY, as traders remain cautious about taking aggressive long positions. The JPY’s resilience reflects a combination of improving domestic economic indicators and external geopolitical factors that continue to anchor demand for the currency.

Geopolitical and Trade Developments

Adding to JPY strength, the US President signed an executive order on Thursday to lower Japanese auto import tariffs, signaling closer US-Japan trade ties. This trade optimism underpins the JPY and acts as a restraint on EUR/JPY upside, limiting the pair’s potential to push significantly higher in the short term.

Market Outlook and Eurozone GDP

The upcoming revised Eurozone Q2 GDP report is now at the forefront of traders’ attention. Analysts anticipate that any upward revision could provide short-term impetus for EUR/JPY, potentially triggering technical breakouts above key resistance levels. 

Conversely, a weaker-than-expected GDP print may reinforce caution, leaving the pair range-bound near 173.00.

From a technical perspective, EUR/JPY remains above recent support levels, signaling underlying strength despite the absence of sustained buying pressure. Momentum indicators suggest that the pair could attempt a test of the one-month high, but the JPY’s resilience and trade-related developments may continue to cap aggressive gains.

Key Drivers Moving Forward

Several important factors are expected to influence EUR/JPY trading in the near term, shaping both volatility and potential trading opportunities:

• ECB Policy Stance: Market expectations of stable rates continue to support Euro demand. Any unexpected signals from the European Central Bank could trigger volatility in the pair.
• Japanese Economic Data: Positive wage growth and household spending provide support for the Yen, which may limit EUR/JPY upside in the short term.
• US-Japan Trade Developments – Recent tariff reductions and trade talks strengthen the Yen, impacting cross-currency dynamics and EUR/JPY movements.
• Eurozone Q2 GDP Revision: This highly anticipated economic release could create short-term volatility and trading opportunities depending on whether the data meets or deviates from expectations.
• Technical Levels: Key resistance near the one-month high and support around 172.50–173.00 are likely to guide intraday trading strategies.
• Market Sentiment: Broader risk appetite also affects the pair, with risk-off favoring the Yen and risk-on supporting the Euro.

Conclusion

The EUR/JPY pair continues to hover near 173.00, reflecting a cautious market tone amid ECB rate stability and JPY resilience. While spot prices aim for a weekly gain, the combination of supportive Euro fundamentals and a stronger Yen prevents any sustained upward surge. 

Traders are now eyeing the revised Eurozone Q2 GDP data for potential short-term trading opportunities, making the cross-currency dynamics highly sensitive to both economic releases and geopolitical developments.

As EUR/JPY navigates resistance and support levels, the interplay between ECB policy, BoJ stance, domestic Japanese data, and trade developments will continue to shape market sentiment. In the current environment, the pair is expected to trade cautiously, with 173.00 acting as a psychological threshold for both bullish and bearish participants.