EUR/JPY rises on geopolitical optimism, ECB's cautious optimism

• EUR/JPY rises toward 181.30, boosted by renewed geopolitical optimism after comments on a possible peace agreement.
• European Central Bank officials strike a cautious yet slightly positive tone on growth and inflation.
• The Japanese Yen remains under pressure despite expectations of a Bank of Japan rate hike.

EUR/JPY trades higher on Wednesday around 181.30, up 0.40% at the time of writing. The cross benefits from improving risk sentiment as investors closely track political statements hinting at potential progress toward a peace agreement between Russia and Ukraine.

On Tuesday, US President Donald Trump said he believes the two countries are getting very close to a deal, lifting appetite for cyclical assets and supporting the Euro (EUR) against the Japanese Yen (JPY).

In Europe, the recent comments from European Central Bank (ECB) members heightened expectations of an easing pause. Boris Vujcic said he sees “no reason” for another rate cut, while acknowledging that the situation could shift quickly, particularly if an Artificial Intelligence–related bubble were to burst. Madis Müller, also a Governing Council member, argued that the ECB should not rush to cut rates due to a small inflation undershoot, adding that the Eurozone economy appears to be on the path to recovery.

Meanwhile, Vice-President Luis de Guindos stated that growth risks are now “balanced”, highlighting positive progress in services and wage inflation, and noting that the current level of interest rates remains appropriate. These remarks reinforce the perception of an ECB increasingly comfortable with the current economic environment, providing modest support to the Euro.

On the Japanese side, the JPY struggles to benefit from rising expectations of monetary tightening. According to a Reuters report released on Wednesday, the Bank of Japan (BoJ) is preparing markets for a potential rate hike as early as next month, as concerns over the economic consequences of a weak Japanese Yen now outweigh the government’s reluctance toward policy tightening.

Despite this, the Japanese currency remains under pressure. Since early October, the JPY has depreciated by nearly 5%, following the rise to power of pro-stimulus Prime Minister Sanae Takaichi, and by more than 10% since the announcement of US trade tariffs in April. This ongoing decline has prompted Japanese authorities to warn that an intervention to stem Japanese Yen weakness is possible, potentially during the US Thanksgiving period later in the week.

Investors now turn their focus toward Thursday’s release of Tokyo Consumer Price Index (CPI) data for November, an important leading indicator for anticipating the BoJ’s rate path. Market expectations point to moderating inflation, a scenario that could further complicate the central bank’s balancing act between stabilizing economic conditions and addressing Japanese Yen weakness.

This mixed backdrop explains why the rise in EUR/JPY is currently driven more by support for the Euro and geopolitical relief than by fundamental Japanese Yen weakness.

EUR/JPY Technical Analysis

In the 4-hour chart, EUR/JPY trades at 181.32, sharply up for the day and above the day opening price by 64 pips. The 100-period Simple Moving Average (SMA) rises steadily, with price holding above it; the SMA stands at 179.31 and offers dynamic support. The Relative Strength Index (RSI) prints at 63.56, above the midline, showing firm bullish momentum. Immediate resistance is seen at 182.01, and a sustained break could extend the advance.

The rising trend line from 175.71 underpins the bullish bias, offering support near 180.58. Support is seen at 180.58, then at 180.00; holding this area would keep dips limited, while a close below 180.00 would dent the positive tone and shift risk toward a deeper pullback.

(The technical analysis of this story was written with the help of an AI tool)