Both EUR/JPY and NZD/USD are trading with a bearish bias as markets prepare for critical central bank decisions from the European Central Bank (ECB) and the Reserve Bank of New Zealand (RBNZ). Diverging monetary policy expectations between these central banks and their counterparts are key drivers of the current weakness.
EUR/JPY Holds Near 187.00
The EUR/JPY pair is holding losses near the 187.00 support zone on Wednesday. Market participants remain cautious ahead of the ECB's monetary policy decision. The pair has declined over the past two sessions, erasing earlier gains, as traders weigh the possibility of a rate cut that could weaken the euro further against the yen. A break below 187.00 could target the 186.50 area (50-day moving average), while resistance sits at 188.00 and 188.50. The RSI near 45 suggests bearish momentum without being oversold.
The ECB is widely expected to hold its main refinancing rate at 4.50%, but the focus is on forward guidance. Analysts at Commerzbank note that the market is pricing in a 25-basis-point cut, with the real focus on the ECB's statement and President Christine Lagarde's press conference. If the ECB signals further easing, the euro could extend its losses; a hawkish surprise might trigger a short-term rebound. The yen, meanwhile, is supported by safe-haven flows and expectations that the Bank of Japan (BoJ) may exit ultra-loose policy. BoJ Governor Kazuo Ueda has hinted at a potential rate hike later this year, widening the policy divergence between the ECB and BoJ.
NZD/USD Tests Critical Support at 0.5850
The NZD/USD pair is hovering near a two-week low, trading with a bearish bias as the US dollar strengthens. The pair is testing the critical 0.5850 support level, which coincides with the 200-day Simple Moving Average (SMA). A decisive break below this threshold could open the door to further downside toward 0.5800 or lower. The RSI has dipped below 50, indicating bearish momentum.
Key drivers include a hawkish Federal Reserve and resilient US economic data, which have reduced expectations for near-term rate cuts and boosted the greenback. On the other side, the RBNZ has adopted a more dovish stance, with markets pricing in potential rate cuts later this year. Slowing GDP growth, weak consumer spending, and a softening housing market add to the NZD's bearish sentiment. China's economic slowdown also pressures the NZD as a major trading partner. Westpac analysts suggest the pair could fall to 0.5700 if the 0.5850 support fails, while ANZ Research points to the policy divergence between the RBNZ and Fed as a key driver.
Broader Market Context
The weakness in EUR/JPY began in early February when the pair peaked near 190.00, declining by approximately 1.5% since then. The IMF projects eurozone growth of only 0.8% in 2025, supporting the case for ECB rate cuts. The yield differential between German and Japanese government bonds has narrowed, reducing the euro's appeal. For NZD/USD, the pair is down 2.5% in March, underperforming other commodity-linked currencies like the AUD/USD (down 1.8%) and USD/CAD (up 1.2%). The NZD's sharper decline reflects its higher sensitivity to Chinese economic data and RBNZ policy expectations.
