EUR/JPY rises to 163.00 amid notable JPY supply, Eurozone CPI final expected for some boost

• EUR/JPY pulls a buy discount on Tuesday and is building on the overnight rebound from the one-week low.
• Uncertainty over a BoJ rate hike and a positive risk tone undercut the JPY, providing some support.
• Bets on an ECB rate cut could prevent euro bettors from placing new bets and limit any further gains.

The EUR/JPY cross is up nearly 130 pips from the Asian session low around the 161.70 region and has climbed to a fresh daily high in the past hour amid fresh selling around the Japanese yen (JPY). Spot prices are currently trading around 163.00 and the bulls are now looking to build on the good overnight recovery from the 160.40 area or a one-week low.

Japanese Prime Minister Fumio Kishida’s decision to resign raises political uncertainty in the country and could hamper the Bank of Japan’s (BoJ) plan to steadily raise interest rates from near zero. This, along with the strong underlying bullish sentiment in global equity markets, is seen as a key factor undermining the safe-haven JPY and acting as a tailwind for the EUR/JPY cross.

That said, the risk of further escalation of geopolitical tensions in the Middle East could keep a lid on market optimism. Moreover, data from Japan points to an improving macroeconomic environment, which should encourage the BoJ to raise interest rates again later this year. This, along with dovish European Central Bank (ECB) expectations, should limit gains for the EUR/JPY cross.

In fact, markets have been weighing in on the possibility that the ECB will cut rates again, following falling eurozone inflation and a poor economic outlook. Bets were reaffirmed by overnight comments from Finnish central bank chief and ECB policymakers Olli Rehn, saying the central bank may have to cut interest rates again in September given persistent economic weakness.

Therefore, it will be prudent to wait for continued buying before positioning for a resumption of the recent solid recovery move from the 154.40-154.35 region or the YTD low reached earlier this month. Investors are now eagerly awaiting the release of the final Eurozone CPI print, which could weigh on the Euro and produce some short-term trading opportunities around the EUR/JPY cross.