European Central Bank Policy Update

In December, the European Central Bank (ECB) decided to keep interest rates the same. They hinted that this would continue for now. As of now, there is a less than 10% chance of a 25 basis point rate cut in February 2026. Looking at the charts, the EUR/JPY (Euro-Japanese Yen) shows an upward trend, upheld by the 100-day EMA at 177.80. The currency is trading close to the upper Bollinger Band, with a positive Relative Strength Index (RSI) at 61.05, indicating that it’s not in overbought territory. Key factors influencing the Japanese Yen include the Bank of Japan’s (BoJ) policy, bond yield differences, and overall market sentiment. The BoJ’s very loose monetary policy has caused the Yen to weaken, but recent changes may offer some support. The Yen often gains value during market turmoil, acting as a safe haven. Currently, the EUR/JPY pair is stable around 183.80, and we expect it to maintain positive momentum as we enter the new year. Watch for resistance at 185.25; if it breaks above this level in early January, we could see further gains for the currency pair.

Options Trading Strategies

The Bank of Japan’s slow exit from its loose policy is the key factor holding back the Yen’s strength. For November 2025, core inflation in Japan dipped to 2.5%. While this is above the BoJ’s 2% target, it indicates a cautious approach, disappointing those who expected a more aggressive tightening. In contrast, the ECB seems happy to keep rates steady for now. Recent estimates for December 2025 showed Eurozone inflation at 2.9%, giving the ECB little reason to consider rate cuts soon. This difference in policy between the cautious BoJ and the steady ECB is driving the upward trend for the Euro. For those trading derivatives, buying call options with a strike price above 185.25 might be a smart move to take advantage of a potential breakout soon. Alternatively, selling out-of-the-money put options could earn premium income by betting that support at 182.95 will hold. The low trading volume during the holidays may cause some ups and downs, but the overall bullish trend seems strong. It’s important to keep the big picture in mind. The BoJ only ended its negative interest rate policy in March 2024. The market views the current tightening as historically slow, which has been a key reason for Yen weakness over the past year. This long-term view supports the idea that any price pullbacks could be good buying opportunities. Create your live VT Markets account and start trading now.

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