Scotiabank strategists Shaun Osborne and Eric Theoret report that the Japanese Yen (JPY) is underperforming most G10 currencies, trading in a relatively flat range between 158.00 and the mid-159s against the US Dollar (USD) [1]. The Yen is down 0.1% versus the USD, with only the Norwegian Krone (NOK) performing worse among G10 currencies [1]. Recent media reports indicate that major banks have shifted their Bank of Japan (BoJ) tightening expectations to September, which has led to market pricing of about a 20 basis point move, suggesting some room for further upside [1]. Market participants are now focusing on the BoJ's tone beyond the September 18 meeting, as fundamental releases have been limited [1].
In the Eurozone, the Euro (EUR) is consolidating in the mid to upper 1.16s against the USD following stronger-than-expected German IFO business sentiment data for August and an improvement in Germany’s final Q2 GDP figures, largely driven by trade [2]. These positive data points are seen as constructive and are expected to bolster European Central Bank (ECB) confidence ahead of the September 10 rate decision [2]. Markets have nearly fully priced in a 25 basis point hike (~24 bps), with short-term rates markets reflecting a cumulative 42 basis points of tightening by year end [2]. Despite the recent recovery in yield spreads providing fundamental support to the EUR, strategists see little scope for additional near-term strength as the spot rate trades slightly above their fair value estimate of 1.1622 [2].
Technical analysis for the EUR/USD pair indicates that the Relative Strength Index (RSI) remains bullish around the overbought threshold at 70, with the latest rally stalling above near-term resistance at 1.17. There is no significant resistance ahead of 1.18, while near-term support is seen at 1.1650 and 1.1600, and the 200-day moving average is at 1.1632 [2].
Overall, both the Yen and the Euro are experiencing limited near-term upside, with market participants closely watching upcoming central bank meetings for further direction. The focus remains on the BoJ's tone post-September 18 and the ECB's policy stance at the September 10 meeting, as both currencies trade near key technical and fundamental levels [1][2].
CONCLUSION
Scotiabank strategists highlight that both the Japanese Yen and the Euro are facing capped near-term gains as markets await key central bank meetings in September. While recent data and policy expectations provide some support, both currencies are trading near critical levels with limited room for further appreciation. Market participants are expected to closely monitor the BoJ and ECB for signals that could drive future moves.