EUR/JPY bulls enter the picture as ECB lacks ammunition for bulls

• The EUR/JPY pair is offered after the ECB on Thursday.
• The euro is under pressure due to the lack of certainty regarding the future path of rate hikes by the ECB.

The euro fell against the dollar on Thursday after the European Central Bank (ECB) hiked interest rates by 50 basis points, as expected, but gave bulls no more ammunition or incentive to hold on to the euro, as that did not offer new surprises of an aggressive line. ECB rates are also expected to trend lower in the fourth quarter, which has also weighed on the euro. At the time of writing these lines, the pair USD/JPY It is trading at 140.33 and lost 0.9% on the day, after falling from a 141.93 high to a year-to-date low of 140.08.

However, in the meantime, there are prospects for the ECB to move further, which should support the Euro in the near future. Rabobank analysts explained that the meeting has virtually confirmed a third 50 basis point hike in March: “We expect a 50 basis point hike in March, followed by two 25 basis point hikes in the second quarter, to a terminal rate of 3.50%”, but at the same time noted that “the markets ran away with the few dovish parts of the announcement”.

Looking further, Danske Bank analysts argued that ECB Governor Christine Lagarde’s communication during the press conference reflected a highly divided governing council”, where she also said that ”any decision is the result of a compromise ”.

“In the end,” the analysts added, “the ECB’s intention to raise 50 basis points at the March meeting is not a 100% commitment.”

As expected, the ECB confirmed that its decision will depend on the data and each meeting. This means that as markets operate on a different narrative than what the ECB wants to convey about a more holistic plan (for example, that core inflation persists despite lower headline data), we have seen a few significantly lower returns in today’s meeting.”