Rate spread dynamics are reasserting themselves as the dominant EUR/USD driver now that Middle East risk premium has largely unwound from oil prices. A narrowing gap between US and European yield expectations, as Fed hike pricing fades faster than ECB pricing, points to scope for the pair to grind higher through 2026 and into 2027. The bund curve has flattened alongside the drop in crude, with the 10-year yield already easing to reflect reduced inflation risk. Positioning around a potential final ECB insurance hike will be a key swing factor for European rates markets into year end.

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MUFG forecasts EUR/USD recovering to 1.20 by Q1 2027, above consensus, as fading Fed hike bets and one final ECB insurance hike reshape the rate spread outlook.

Summary:

• EUR/USD weakened from 1.1683 to 1.1422 in June, its longest stretch below 1.15 since June last year
• The ECB raised its deposit rate 25bp to 2.25% in June, its first hike since September 2023
• OIS pricing has fallen from close to three ECB hikes priced before June to roughly one now
• ECB Chief Economist Philip Lane said the top of the neutral policy range had likely drifted to 2.50%
• The 10-year German bund yield fell 8bps in June to 2.86% as crude oil declines eased inflation risk
• EUR/USD is forecast to recover to 1.1600 by Q3 2026, 1.1800 by Q4 2026 and 1.2000 by Q1 2027, above consensus

The euro is set to claw back recent losses against the US dollar and climb to 1.20 by early 2027, according to MUFG, as fading expectations for further Federal Reserve tightening outpace the diminishing but still live prospect of one more European Central Bank rate hike. The euro weakened from 1.1683 to 1.1422 against the dollar in June, its longest run below the 1.15 level in over a year, after the ECB raised its deposit rate 25 basis points to 2.25%, its first increase since September 2023.

The rate move followed a rapid unwind of the geopolitical risk premium built into oil prices earlier this year. Brent crude has largely reversed its US-Iran conflict driven surge, easing energy pass through pressure on inflation faster than had been anticipated. Options market pricing has adjusted accordingly, with OIS markets shifting from pricing close to three ECB hikes before the June meeting to roughly one now.

Even so, a further insurance hike remains plausible. ECB Chief Economist Philip Lane has said the top of the neutral policy range likely drifted higher to 2.50%, suggesting a relatively low hurdle to one more move, while flagging that energy related inflation pass through risks could persist for some time. ECB President Christine Lagarde has separately argued the euro area economy has grown more resilient to external shocks, implying it could absorb a further hike if required.

With crude oil stabilising near current levels, MUFG expects rate spreads to reassert themselves as the dominant driver of EUR/USD, arguing that pricing for a Fed hike now looks less realistic than pricing for a final ECB move. That dynamic underpins the bank’s above consensus forecast profile, with EUR/USD seen rising to 1.1600 in the third quarter, 1.1800 by year end, and 1.2000 by the first quarter of 2027, a level it expects to hold into the following quarter. The 10-year German bund yield, which fell 8 basis points in June to 2.86%, is expected to ease further over the same period as inflation risks continue to recede.

There is no change for Platinum price’s track by its stability within the minor bearish channel’s levels, depending on the stability of its resistance that is located at $1665.00, besides the main stability below $178000 barrier confirms the continuation of the previously suggested negativity, therefore, we will keep waiting for gathering extra negative momentum, allowing it to reach the initial target near $1510.00, and surpassing it will extend the trading directly towards $1480.00 and $1435.00.

While the price rally above $1780.00 and providing a positive close will force it to delay the negative moves, to provide a chances for achieving some gains by its rally towards $1810.00 and $1865.00.

The expected trading range for today is between $1510.00 and $1650.00

Trend forecast: Bearish

BitcoinWorld

EUR/JPY Price Forecast: Edges Lower Below 185.00, Near-Term Bullish Bias Remains Intact

The EUR/JPY cross edged lower in early European trading on Thursday, slipping below the 185.00 psychological handle as the Japanese yen found modest support. Despite the intraday pullback, the near-term technical outlook for the pair remains cautiously bullish, with buyers defending key support levels near the 184.50 zone.

Technical Levels in Focus

The pair is currently trading around 184.80, down approximately 0.2% on the day, after failing to sustain gains above the 185.00 mark. The immediate resistance sits at 185.20, the recent swing high, followed by the 185.50 area. On the downside, initial support is seen at 184.50, with a break below that exposing the 184.00 level and the 50-day simple moving average near 183.70.

The Relative Strength Index (RSI) on the daily chart has eased from overbought territory but remains above 50, indicating that bullish momentum, while fading, has not yet reversed. The Moving Average Convergence Divergence (MACD) indicator shows a bearish crossover on the hourly chart, suggesting the pullback could extend in the short term before buyers step in again.

Market Drivers Behind the Move

The Japanese yen strengthened broadly after comments from Bank of Japan (BoJ) board members reinforced expectations of a gradual policy normalization. Meanwhile, the euro struggled for direction amid mixed eurozone economic data and a cautious tone in equity markets. The combination of a slightly firmer yen and profit-taking after recent euro gains weighed on the cross.

Traders are now looking ahead to eurozone inflation data due later this week, which could influence European Central Bank (ECB) rate expectations and provide fresh impetus for EUR/JPY. Any upside surprise in inflation could support the euro, while a weaker reading might accelerate the current pullback.

What This Means for Traders

For short-term traders, the pullback below 185.00 offers a potential re-entry point for bullish positions if support at 184.50 holds. A sustained break above 185.20 would signal renewed buying interest and open the path toward 185.50 and beyond. Conversely, a daily close below 184.00 would negate the near-term bullish bias and shift focus to the downside.

Longer-term, the trend remains constructive as long as the pair stays above the 183.00 region, which aligns with the 100-day moving average. The broader macroeconomic backdrop—diverging monetary policy paths between the ECB and BoJ—continues to favor the euro over the yen, but traders should remain vigilant for sudden shifts in risk sentiment.

Conclusion

EUR/JPY is experiencing a healthy correction after recent gains, with the near-term bullish bias still intact above 184.50. The outcome of upcoming eurozone inflation data and BoJ commentary will likely determine whether the pair resumes its uptrend or deepens its pullback. Traders should monitor key technical levels and manage risk accordingly.

FAQs

Q1: What is the key support level for EUR/JPY right now?
The immediate support is at 184.50, followed by 184.00 and the 50-day SMA near 183.70. A break below these levels would weaken the bullish outlook.

Q2: Why did EUR/JPY fall below 185.00?
The decline was driven by a modest strengthening of the Japanese yen after BoJ comments reinforced expectations of policy normalization, combined with profit-taking after recent euro gains and cautious market sentiment.

Q3: Is the bullish trend for EUR/JPY still valid?
Yes, the near-term bullish bias remains intact as long as the pair holds above 184.50. The broader trend is still constructive above the 183.00 region, supported by the ECB-BoJ policy divergence.

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