The EUR/JPY currency pair is rising as the Yen weakens and confidence grows in US-China trade talks. Currently, it trades around 176.20, increasing by 0.40% as investors show more risk appetite. US President Trump and Chinese Premier Xi Jinping plan to meet for trade talks, raising hopes of easing recent tensions and boosting global growth. This positive sentiment has lowered the demand for the traditionally safe-haven Yen, benefiting the Euro.

Monetary Policies Affect the Market

The Bank of Japan is not rushing to tighten monetary policy since inflation is below their target. This has made the Yen less appealing. In contrast, France’s political stability supports the Euro, even with ongoing fiscal issues in the Eurozone. Christine Lagarde, the president of the European Central Bank (ECB), indicates that interest rates are likely to stay the same as inflation pressures decrease. The weaker Yen and stable sentiment in the Eurozone are pushing EUR/JPY higher. However, traders are keenly awaiting updates from ECB officials and the upcoming Japanese Consumer Price Index (CPI) report. Currently, the Euro is outperforming major currencies, including the Yen, with a 0.71% increase against JPY. This reflects various international and domestic factors affecting market trends. The heat map clearly shows the Euro strengthening, particularly against the Yen.

Market Sentiment and Strategy

Given the current situation, it’s wise to adopt strategies that benefit from a rising EUR/JPY as optimism surrounding US-China trade talks continues to decrease demand for the Yen. With the pair at around 176.20, the trend seems to lean upwards. This positive sentiment is mirrored in the VIX index, which has dropped below 15, the lowest in three months. We expect the Japanese Yen will stay under pressure, especially after confirming Japan’s September CPI at just 1.8%, still below the Bank of Japan’s 2% target. This suggests the Bank of Japan won’t rush to raise interest rates, making the interest rate gap with the Eurozone wide and attractive for carry trades. Comparing with the period from 2022 to 2024, we see how a widening rate gap has fueled sustained rallies in this pair, and this trend appears to be continuing. On the other hand, the Euro shows strength, supported by the ECB maintaining its main interest rate at 3.0%. Although Eurozone inflation cooled to 2.9% in September, Lagarde’s cautious position indicates rates will remain high for now, giving the Euro a yield advantage. Political calm in France further reduces risks for the Euro. Considering this perspective, we are looking at buying call options on EUR/JPY with strike prices around 178.00, expiring in four to six weeks to capture potential gains. Alternatively, selling out-of-the-money put options could be a good strategy to earn premiums while maintaining a bullish-to-neutral outlook. This aligns with recent positioning data, as the latest Commitment of Traders report shows speculators are increasing their net-short positions on the Yen. Create your live VT Markets account and start trading now.

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