EUR/JPY finds resistance near 161.00 as Lagarde eyes rate cuts in summer

• EUR/JPY faces a barrier near 161.00 as Lagarde forecasts a rate cut in late spring.
• Disruptions to Red Sea oil supplies could trigger upside risks to energy prices in the Eurozone.
• The Bank of Japan could postpone its plans to abandon ultra-dovish monetary policy.

EUR/JPY has found intermediate resistance near 161.00 in the European session. The asset has felt nominal selling pressure as the President of the European Central Bank (ECB), Christine Lagarde, has indicated that the central bank could begin the “rate cut” cycle in the summer.

Lagarde refrained from announcing a victory on inflation, as she believes that price pressures are far from the required rate of 2%. But he added that the collective wage agreements, which will be published in late spring, will give an idea of ​​the fate of household incomes. ECB policymakers have emphasized maintaining a restrictive stance on interest rates, saying it is too early to announce rate cuts.

Meanwhile, uncertainty over tensions in the Middle East has heightened the upside risks to energy prices. The Iran-backed Houthi group has threatened to retaliate for US military airstrikes on its bases in Yemen. The Houthi rebels are expected to disrupt commercial shipping across the Red Sea, which could lead to a sharp rise in oil prices. This may accelerate price pressures in the Eurozone and could delay possible rate cuts.

As for the Japanese Yen, investors are awaiting national Consumer Price Index (CPI) data for December, which will be released on Friday. Price pressures are expected to remain above 2%, but are not expected to move the needle in favor of an early exit from the ultra-moderate interest rate policy. The earthquake in Japan, the moderation of inflation in Tokyo and weak wage growth would limit the Bank of Japan to reverse its expansionary monetary policy.