22.03.2023 11:50 PM
EUR/JPY. Lagarde rushes to the rescue: the euro has strengthened its position amid the rhetoric of the ECB head

The US dollar is waiting for the results of the Federal Reserve meeting, which will be announced at the end of the US trading session. The situation is ambiguous, so the foreign exchange market is uneasy, especially with regard to dollar pairs. The greenback is gaining momentum, then losing ground, allowing opponents to counterattack. No one knows for sure how the March meeting will end – whether the central bank will maintain a hawkish course or show caution in its stance or decisions. The intrigue will persist until the last minute, so it is extremely risky to trade dollar pairs right now.

Given this disposition, it is better to take a wait-and-see position, "bypassing" dollar pairs. At the same time, you can turn your attention to some cross-pairs, among which you can single out the EUR/JPY pair. There is a pronounced uptrend here, due to the strengthening of the euro.

Happy end and risk appetite

In general, the euro-yen cross-pair has recently shown increased volatility. For example, on Monday, the price updated the two-month low, reaching 138.78. Whereas the pair just updated the weekly high at 143.57. Literally in two days, the price jumped by almost 500 (!) points. This price dynamic is due to several fundamental factors.

First of all, the craving for risky assets has increased in the market after Credit Suisse was rescued. As you know, Swiss bank UBS decided to buy out its competitor for $3.2 billion. Given the fact that Credit Suisse is one of the 30 systemically important global banks, the significance of this event can hardly be overestimated. And although after the decision, UBS bank shares fell by 16%, in general, the stock indices of the largest countries in Western Europe rose.

For example, on Monday, the Stoxx Europe 600 composite index of the largest European companies rose by 0.98% to 440.6 points. The European Central Bank and the Swiss National Bank issued special statements in which they commented on the "happy ending" of this story. In particular, the SNB said that the Credit Suisse takeover is "the best way to restore market confidence in the banking system and avoid the risks of a broader banking crisis." The ECB shared the same sentiments.

Lagarde rushes to the rescue

ECB President Christine Lagarde also provided support to the euro, who said that the ECB "we are neither committed to raise further nor are we finished with hiking rates." On the one hand, this phrase has a twofold character. But these words should be considered in the context of the ECB's March meeting, which took place last week.

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The central bank increased rates by 50 points and was concerned about inflation, which again began to gain momentum in February. At the same time, the Bank did not announce an increase in interest rates at the next meeting. At the final press conference, Lagarde noted that the relevant decisions (on raising rates) will be determined by "our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission." For comparison, back in February, Lagarde "directly" warned the markets about the upcoming "significant" increase.

Speaking at the European Parliament's Committee on Economic and Monetary Affairs, Lagarde voiced a rather hawkish stance. Yes, she did not specify the ECB's intentions, but her words were quite unambiguous. In particular, she was concerned about the dynamics of inflationary growth. According to her, inflation in the eurozone is "still high", and uncertainty about its further path has only intensified. It is also worth noting another phrase of Lagarde, which she uttered in the European Parliament. Commenting on the prospects for further tightening of monetary policy, she noted that "if there were no tension in the financial markets, the central bank would have indicated the need for further rate hikes."

This remark is hawkish in nature, given the fact that the story with Credit Suisse ended relatively successfully.


Interest in risky assets has increased in the markets, and therefore the yen, which has the status of a protective asset, has ceased to be in high demand. At the same time, the euro received support from Lagarde. In fact, she made it clear that the central bank will continue to fight against high inflation, even despite the existing risks of "side effects". According to Nordea Bank analysts, if the March Consumer Price Index rises again (or even if it remains at the same February level), the ECB will increase the rate by at least 25 points in May. Further prospects for monetary tightening will depend on the incoming data.

This information background contributes to the development of the uptrend for the EUR/JPY pair.

In terms of technique, the cross pair is on the middle line of the Bollinger Bands indicator on the daily chart, as well as above all lines of the Ichimoku indicator, which formed a bullish "Parade of lines" signal. You can consider long positions once the bulls overcome the middle line of the Bollinger Bands, that is, above 143.40. The main target for the bullish movement will be 145.50, which is the upper line of the Bollinger Bands on the same chart.

Irina Manzenko,
Analytical expert of InstaForex
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