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• EUR/JPY stays in tight range below 162.00, with investors focusing on the flash German and Eurozone HICP data for December.
• The ECB is almost certain to cuts its Deposit Facility rate by 25 bps in the policy meeting this month.
• Japanese markets are closed on account of New Year celebrations.

The EUR/JPY pair trades in a tight range below the key resistance of 162.00 in Friday’s European session. The cross consolidates as investors await the preliminary German and Eurozone Harmonized Index of Consumer Prices (HICP) data for December, which will be released on Monday and Tuesday, respectively.

The inflation data will significantly influence market expectations for the likely European Central Bank (ECB) interest rate action in the policy meeting this month. Currently, traders have priced in 25 basis points (bps) interest rate reduction that will push the Deposit Facility rate lower to 2.75%. Signs of a sharp slowdown in inflationary pressures would accelerate expectations of a larger-than-usual interest rate cut of 50 bps.

Meanwhile, almost all ECB policymakers are comfortable with market expectations of continuation in policy-easing at a steady pace due to growing risks to Eurozone economic risks.

Broadly, the Euro (EUR) will be guided by market speculation for how much United States (US) President-elect Donald Trump will raise import tariffs on the shared continent when he will take administration on January 20. In the election campaign, Trump threatened to raise import tariffs on the Eurozone for not buying significant American goods.

In the Asia-Pacific region, volatility in the Japanese Yen (JPY) remains low as markets are closed in Japan on account of New Year celebrations. However, traders are worried about Japan’s stealth intervention in the FX domain against excessive foreign exchange moves. Japan Finance Minister Katsunobu Kato said last week that authorities are watching FX moves closely and will act to stabilize faltering Yen.

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