EUR/JPY rose for a third session and was on track for a strong weekly gain, with attention turning to talk that European Central Bank officials are prepared to raise rates in September, according to Bloomberg sources. Christine Lagarde said inflation risks are skewed higher while growth risks are tilted lower, and repeated that policy will be set to return inflation to the 2% medium-term target without pre-committing to an interest-rate path. The yen’s slide against the euro was contained by unease that the Bank of Japan could step into FX markets.
Friday’s focus is on Japan’s data slate, where National CPI excluding fresh food is expected to edge up from 1.4% to 1.6% YoY, while Jibun Bank flash manufacturing PMI is seen easing from 54.8 to 54.5. In the Eurozone, HCOB flash PMIs are in view: the EU manufacturing gauge is forecast to slip from 51.4 to 51.3, while services is expected to improve from 49.4 to 49.8 but remain in contraction. Technically, upside levels cited are 187.56, then 187.95, with 188.00 and 190.00 beyond; support is seen at 186.05, then the 50- and 100-day SMAs at 185.16/02, and the 200-day SMA at 183.44.
Trading Strategy and Risk Management
We advise derivative traders to position for short-term upside in EUR/JPY while tightly managing risk. The cross is pushing toward its year-to-date high of 187.95, fueled by speculation that the European Central Bank could raise rates in September. To capitalize on this momentum, we recommend utilizing call options to capture further upside while limiting downside exposure.
However, we must remain highly cautious of potential currency intervention by the Bank of Japan. Looking back at historical data, Japan spent a record 9.8 trillion yen (around $62 billion) in mid-2024 to defend its currency, showing how aggressive they can be when the Yen weakens too much. Because sudden interventions can cause the Yen to rally instantly, we suggest utilizing knock-out options or tight stop-losses on any long EUR/JPY positions.
Key Data and Technical Levels
We also need to closely monitor upcoming macroeconomic data to guide our short-term trades. Japan’s National CPI excluding Fresh Food is expected to rise from 1.4% to 1.6%, which could bolster the Yen if the data surprises to the upside. At the same time, we are watching the Eurozone manufacturing PMIs, where any reading above the expected 51.3 could add more fuel to the Euro’s rally.
From a technical perspective, a break above 187.56 will likely open the doors for a run toward the psychological resistance at 188.00 and potentially 190.00. On the flip side, if the pair breaks below the immediate support level of 186.05, we should prepare to pivot and look for put option strategies targeting the 50-day moving average near 185.16. By hedging with multi-leg option strategies, we can exploit the expected volatility without getting caught in a sudden central bank crossfire.
