EUR/JPY steadies near 187.50 as improved oil prices weighs on Japanese Yen

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EUR/JPY moves little after registering little losses in the previous day, trading around 187.30 during the early European hours on Wednesday.

EUR/JPY maintains its position as the Japanese Yen struggles on improving oil prices.
Oil prices gain as US–Iran talks face uncertainty after Trump said he isn’t considering extending the ceasefire.
The currency cross’s upside may be limited as the Euro weakens amid cautious sentiment following uncertainty over renewed Iran talks.

EUR/JPY moves little after registering little losses in the previous day, trading around 187.30 during the early European hours on Wednesday. The currency cross maintains its gains as the Japanese Yen (JPY) remains under pressure, reflecting Japan’s heavy dependence on Middle East oil imports, as oil prices pare daily losses. However, the JPY may receive support from speculation surrounding potential Japanese intervention.

Crude oil prices gain as US-Iran further talks come into question after US President Donald Trump said in an ABC News interview on Wednesday that he is not considering extending the ceasefire, adding that he does not believe it will be necessary. “I think you’re going to be watching an amazing two days ahead. I really do,” Trump remarked.

Moreover, the US military also announced a full blockade of the Strait of Hormuz on Tuesday, tightening supply conditions and casting doubt over the next round of negotiations with Iran.

Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda said policymakers must remain vigilant to the economic fallout from the Middle East conflict, warning that higher oil prices could weigh on Japan’s growth outlook.

The upside in the EUR/JPY cross may be limited as the risk-sensitive Euro (EUR) comes under pressure, with market sentiment turning slightly cautious after uncertainty emerged over renewed Iran talks.

However, The New York Post reported earlier that Trump had indicated talks could resume this week, while also opposing a 20-year suspension of Iran’s nuclear enrichment program. Meanwhile, Vice President JD Vance pointed to “significant progress” in the initial round of Iran negotiations held in Pakistan, with follow-up discussions potentially expected within days.

The Euro (EUR) may find underlying support as markets continue to price in modest tightening by the European Central Bank (ECB) at the April 30 meeting, along with expectations of two additional rate hikes this year. ECB President Christine Lagarde said the central bank is well-positioned to manage developments related to Iran, while cautioning that it remains too early to dismiss the broader impact of the shock.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.