EUR/JPY and GBP/JPY Outlook: Rate Differentials Lead the Charge as Politics Take a Backseat

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By Emma Caldwell

EUR/JPY and GBP/JPY: Focus on Rate Differentials, Not Politics
As we move further into December 2024, the EUR/JPY and GBP/JPY pairs are seeing significant price action driven primarily by interest rate differentials rather than the typical political headlines. With central banks taking divergent paths, these currency pairs are becoming increasingly sensitive to changes in monetary policy expectations, particularly from the European Central Bank (ECB) and the Bank of Japan (BoJ).

For EUR/JPY, the difference in interest rate policies between the European Union and Japan has made the pair particularly vulnerable to changes in sentiment surrounding future ECB decisions. Similarly, GBP/JPY is also caught in the crosswinds of ongoing rate changes as the Bank of England (BoE) continues to navigate economic uncertainty.

EUR/JPY: Charting a Path Amid Economic Divergence
The EUR/JPY pair has seen some strong movement, largely influenced by shifting expectations around ECB monetary policy. With the ECB taking a more hawkish tone, coupled with robust economic data from the Eurozone, the pair has managed to hit some of its key targets for the short term, traders are keeping a close eye on global economic trends and their impact on the euro’s strength against the Japanese yen, especially as the BoJ’s dovish stance contrasts with the ECB’s tightening.

The technical setup also shows a notable pattern, with EUR/JPY currently in a slight upward correction after reaching previous resistance levels. The next challenge for the euro will be to break through its established resistance near 159.00, with further gains likely to be driven by favorable data or positive sentiment surrounding the Eurozone economy .

JPY: Rate Expectations Drive Volatility

The GBP/JPY is heavily influenced by rate expectations as well. Despite the political uncertainty in the UK, the BoE’s more hawkish approach compared to the Bank of Japan has provided the pound with an edge against the yen. This is evident in the pair’s movements, where market participants are focusing more on rate expectations than the political landscape .

From a technictive, GBP/JPY has been caught in a broad ascending triangle pattern. The recent resistance levels at 180.00 have proved difficult to break, but the market remains cautiously optimistic that further interest rate hikes from the BoE could push the pair higher. Still, traders should be aware of potential volatility, especially as new economic data is released .

WTI and Brenal Pressure in Descending Triangles
Beyond the currency market, commodity prices like WTI and Brent crude are also seeing bearish patterns. Both oil benchmarks are currently trading within descending triangle formations, signaling the potential for further downside if price action fails to break the resistance levels. For traders, this presents an opportunity to explore short positions on oil, with a focus on potential downside targets.

The ongoing global economic conditions, combined with geopolitical tensions, continue to play a role in crude oil’s price action. However, traders are watching key technical levels closely to assess when these oil prices might either break free from the downward pressure or continue to trade in their current range .

What’s Next for EUR/As we head deeper into December, market participants are positioning themselves for potential breakouts in both EUR/JPY and GBP/JPY. While the focus remains on rate differentials, political headlines should not be dismissed entirely. Any major developments from the UK or Eurozone could alter the course of the currency pairs, but for now, traders should stay tuned for economic data that could shift expectations around interest rates.
For EUR/JPY, a move above 159.00 could open the door for further gains, while GBP/JPY could see additional bullish momentum if it clears the 180.00 resistance. Keep an eye on the ECB, BoE, and BoJ, as their respective monetary policies will likely continue to be the dominant force behind price action in these pairs throughout the remainder of 2024 .

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