The ECB lifted its main refinancing rate to 2.65% on 10 September as inflation stayed above target, while the euro posted modest gains versus most majors but slipped overall against the dollar after the decision. Inflation projections for 2026 were left at 3%, and the outlook for next year was nudged higher, as growth forecasts for 2026 and 2027 were revised up. Eurozone output was firmer than earlier readings implied: GDP rose 0.6% in the second quarter, the strongest quarterly expansion in about four years. August headline inflation accelerated to 3.3% year on year, the highest since the start of the Gulf conflict and the fastest in about three years, driven mainly by energy prices. Markets see scope for another move in December, which would be the third hike this year, while a 29 October increase is viewed as unlikely.
In FX, EURJPY rose after the ECB move, but attention is on the BoJ, which markets expect to lift rates to 1.25% on 18 September, a 31-year high, even as rate differentials are seen supporting the euro into early 2027. Technically, EURJPY has fallen through the 23.6% weekly Fibonacci retracement just above ¥180 after three consecutive closes below, with the next support near the 38.2% level around ¥175.40; oversold signals include the slow stochastic and Bollinger Bands. EURGBP was less reactive, with low ATR into early September; resistance sits near the 38.2% weekly retracement above 86p, while potential support is around the 50% Fibo near 85.4p, ahead of UK inflation on 16 September, expected at 3.1%.
Derivative Strategy After ECB Hike
We believe derivative traders should prepare for shifts in currency volatility following the ECB’s recent rate hike to 2.65%. While Eurozone inflation reached a three-year high of 3.3% in August, strong Q2 economic growth of 0.6% suggests the economy can handle tighter policy. We should position ourselves for a relatively quiet period ahead of the October meeting, as another immediate rate hike is highly unlikely.
We recommend looking closely at EURJPY options and futures ahead of the Bank of Japan’s rate decision on September 18. Japanese policymakers are expected to raise rates to 1.25%, a benchmark level not seen in Japan since 1995. If the pair remains unable to break back above the ¥180 level, we should target short positions toward the ¥175.40 support area.
Because technical indicators show the euro is currently oversold against the yen, we must be cautious of a temporary bounce. We can use limited-risk strategies, like bear put spreads, to protect against sudden Japanese central bank interventions. Monitoring German economic sentiment on September 15 will also help us gauge if the euro has the strength to reclaim the ¥180 mark.
EURJPY and EURGBP Tactical Positioning
For EURGBP, we suggest trading the range between the 85.4p support and the 86p resistance level. British inflation data on September 16 is expected to rise to 3.1%, which could temporarily strengthen the pound and push the pair lower. We should consider selling call options near 86p or buying put options if the price fails to break its current resistance.
