German Industrial Production Boost

German Industrial Production increased by 1.8% in October, surprising many who expected a 0.4% drop. This upbeat report calmed worries about Europe’s largest economy and helped strengthen the EUR/JPY. In Japan, the Q3 GDP was adjusted down to -0.6%, indicating a bigger contraction and weakening the Yen. However, nominal wages in Japan rose by 2.6% in October, raising hopes for a possible interest rate hike by the Bank of Japan. Japanese Government Bond yields remained elevated due to market speculation and the government’s fiscal policies. Looking at the charts, EUR/JPY stayed above the 100-period Simple Moving Average, showing bullish sentiment. Key resistance and support levels were noted at 181.27 and 180.16, respectively. As of December 8, 2025, the differing economic signals create a clear opportunity in the EUR/JPY pair. The Euro is gaining strength from solid data, including Germany’s unexpected 1.8% rise in industrial production and an improving Sentix investor confidence index. This positive trend is also supported by the German IFO Business Climate index, which increased to 91.5, indicating a broader recovery in Germany.

ECB’s Hawkish Outlook

The European Central Bank seems to be taking a hawkish stance, which supports a stronger Euro. Isabel Schnabel’s recent comments coincide with November’s Eurozone inflation data, showing a stubborn 2.8%, well above the ECB’s 2% target. This makes the market’s expectations of a possible rate hike more credible, providing a boost for the Euro in the short term. In contrast, Japan’s outlook is more complicated, leading to uncertainty that derivative traders may capitalize on. Japan’s Q3 GDP was revised down to a concerning -2.3% annualized contraction, but nominal wages rose by 2.6% in October. With core CPI inflation holding steady at 2.4% for November, real wages are barely growing, putting the Bank of Japan in a tough spot ahead of its upcoming meeting. This scenario creates a good opportunity to use options for trading around the expected market swings from central bank meetings later this month. We think buying EUR/JPY call options with a strike price near 182.00 and an expiration in late December or early January 2026 is a smart move. This allows us to benefit from the Euro’s upward momentum while keeping our initial risk limited to the premium paid. To manage the main risk of an unexpected rate hike from the Bank of Japan, it would be wise to hedge our position. After the BoJ ended negative interest rates back in 2024, we can’t dismiss the chance of another significant change. Buying a smaller number of out-of-the-money EUR/JPY put options would safeguard against a sharp decline in the pair if the BoJ takes more aggressive action than expected. Create your live VT Markets account and start trading now.

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