EUR/JPY advanced to around 182.60 during Asian trading hours on Monday, rebounding after two days of losses as optimism grew regarding a potential resolution to the US-Israel conflict with Iran. This sentiment was bolstered by a report from The Guardian, citing US Energy Secretary Chris Wright's expectation that the conflict could end within 'the next few weeks,' which may allow oil supplies to recover and ease energy prices [1].
Despite the upward movement, the Euro's gains may be capped due to ongoing pressure from rising oil prices, highlighting Europe's vulnerability to higher energy costs that could negatively impact the region's trade balance. The recent surge in energy prices has prompted money markets to price in two European Central Bank (ECB) rate hikes this year, a significant shift from last month when no policy changes were anticipated [1].
French President Emmanuel Macron emphasized the need to restore freedom of navigation through the Strait of Hormuz and called on Iran's president to halt attacks against regional countries, including Lebanon and Iraq [1]. Market participants are now focusing on the upcoming ECB policy meeting, where President Christine Lagarde is expected to address inflationary concerns linked to the conflict [1].
The EUR/JPY cross may also encounter resistance as the Japanese Yen finds support amid expectations of possible foreign exchange intervention by Japanese authorities. Finance Minister Satsuki Katayama stated that the government is closely monitoring currency movements and is prepared to take strong action if necessary [1].
CONCLUSION
EUR/JPY's rise reflects optimism over a potential resolution to the Iran conflict and shifting ECB policy expectations, but upside may be limited by persistent energy price pressures and possible Japanese intervention. Traders are closely watching the ECB's next moves and developments in the geopolitical landscape for further direction.