The currency markets have been witnessing notable movements as economic data releases continue to sway investor sentiment. The EUR/USD pair, in particular, has experienced a shift in momentum, driven by surprising figures from the US economy. Concurrently, anticipation builds up ahead of the Bank of Japan's (BoJ) meeting, with speculation rife regarding its policy stance amidst encouraging domestic indicators.

US Economic Strength Underpins USD

The EUR/USD pair has retreated from its recent highs in the 1.0900s, finding itself in the upper 1.0800s. This reversal comes on the heels of robust economic data from the United States, which has bolstered the position of the US Dollar. Notably, the Producer Price Index (PPI) surpassed expectations, registering a 1.6% year-on-year increase in February, exceeding the consensus estimate of 1.1%. Coupled with favorable figures in Initial Jobless Claims and Retail Sales, the data points to a resilient US economy, potentially necessitating prolonged higher interest rates by the Federal Reserve.

ECB's Early Rate Cut Speculations Weigh on Euro

While the US economy demonstrates strength, the European Central Bank (ECB) grapples with divergent views among policymakers regarding the appropriate timing for interest rate adjustments. Despite Christine Lagarde's indication of a review in June, dissenting voices, including Francois Villeroy de Galhau and Yannis Stournaras, have hinted at potential rate cuts as early as April. Such speculation has exerted downward pressure on the Euro, as uncertainty looms over the ECB's monetary policy trajectory.

Technical picture of EURUSD indicates that the price experienced a temporary reprieve after dropping sub 1.09 level after US PPI release, finding support at 1.0875. Risks for the pair continue to be skewed on the down side with 1.08-1.0780 as a major selling target as the Fed’s assessment of incoming data for February due next week will likely reveal decreased dovish bias in the policy, delaying timing of potential rate cut even further in the 2H 2024.  Strong support zone for the pair could likely be located near the medium-term support line as indicated below:

USD/JPY Climbs Amid BoJ Expectations

In the late European session, the USD/JPY pair surged to 148.80, propelled by weakening Japanese Yen amidst anticipation surrounding the upcoming Bank of Japan meeting. Market sentiment suggests that the BoJ is unlikely to deviate from its expansionary policy stance, particularly in light of favorable inflation metrics and significant wage increases by Japan's leading corporations. Attention now turns to the BoJ's press conference, where policymakers will deliberate on the possibility of phasing out negative interest rates and Yield Curve Control (YCC), as hinted by Governor Kazuo Ueda.