EUR/JPY may face another challenging end to the year.

The pair is under pressure due to falling European bond yields and growing expectations that the Bank of Japan will tighten its policy in December. Market odds for a 25 basis point rate hike from the Japanese central bank at its next meeting remain above 60% following comments from BOJ Governor Kazuo Ueda, who was quoted as saying in a Nikkei article on Friday that the next hikes are "nearing" as economic data continues to improve.

In contrast, the euro is weakening due to data showing contraction in the euro zone's manufacturing sector and political discord in France over the budget. As a result, EUR/JPY has entered oversold territory for the first time since September. A rebound would present an opportunity to sell the pair with it poised to test its year-to-date low of 154.435 amid broad euro weakness. Additionally, the 21-day moving average is nearing a bearish cross below the 55-DMA and 100-DMA, which are currently at 162.45-49.

If EUR/JPY closes the month lower, it will mark the third consecutive December decline. Before 2022, seasonal trends were generally favorable for the pair, with year-end equity gains and lower volatility typically supporting it. For more click on

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))