Euro's Downside Risk in EUR/JPY Less Straightforward

DBS strategist Philip Wee notes that while the Euro (EUR) is strong against other major currencies, its downside risk in EUR/JPY is less straightforward. He attributes this to several factors, including the EUR's anti-USD trade and strength in EUR/CHF and EUR/GBP.

Wee points out that markets are pricing in a high probability of rate hikes at both the European Central Bank (ECB) and Bank of Japan (BoJ) meetings. However, he warns that if the BoJ accelerates normalization, it could push EUR/JPY below its psychological support at 180.

This suggests that while the Euro is well-supported in the short term, there is a risk of a decline in EUR/JPY if the BoJ takes a more hawkish stance. Wee's comments highlight the complexities of currency markets and the need for careful analysis of market sentiment.