EUR/JPY turned bearish on Wednesday and was last seen trading near 140.61. Considering the Euro & Japanese Yen pair had made a high of 144.98 on the same day, the trading level of 140.61 suggests a lot of bearish pressure.
Overall, the EUR/JPY pair lost -2.34% during the intraday trading amid the worsening fundamental situation and a decline in European banking shares.
Experts believe that the market is fearful of contagion in the banking sector of Europe. This caused the Euro to decline against other currencies, including the JPY. In addition, a major investor also backed out from supporting Credit Suisse!
The fall of SVB was an expected event for everyone, including the European Central Bank (ECB). That's why the market is now expecting the ECB to adopt an accommodative approach in the upcoming meeting.
Earlier, the economists were forecasting the ECB to introduce a 50 bps rate hike at the upcoming meeting. This was supposed to combat inflation by putting a cap on the demand.
But now that the banking sector has come under pressure, any further increase in the rate hikes could lead to some major consequences.
That's why the ECB will most likely opt for no rate hike or a very small one during the upcoming meeting.
So another factor that is putting bearish pressure on EUR against the JPY is the fact that ECB might not raise rates during the meeting.
The analysts at Commerzbank have already expressed their concerns on how the contagion risk has become very high in the Euro.
But when we look at Japan, the administration is still supporting a very dovish policy. That's why a flight away from Euro and towards the Japanese Yen doesn't make sense. But it appears that the market is now supportive of the Yen against the Euro.
That's why we believe that the recent sell-off in the EUR/JPY pair will most likely be short-lived at best.