- EUR/JPY is expected to rise to about 171.85 during the early European trading hours on Wednesday.
- The positive outlook for this currency pair stays intact beyond the 100-day EMA, though a more cautious consolidation might be preferred, as the RSI indicators are neutral.
- The immediate resistance is observed at 172.67, while initial support is at 171.12.
EUR/JPY is likely to gain ground, approaching 171.85 in the early European session Wednesday. The Japanese yen is weakening against the euro as risk sentiment improves, eroding the yen’s typical safe-haven appeal. Market participants are closely watching upcoming economic reports that could influence the Bank of Japan’s (BOJ) policies. Notably, Japan’s Tokyo Consumer Price Index (CPI) for August is due on Friday afternoon.
On the technical side, the EUR/JPY pair exhibits a bullish trend on daily charts, surpassing the 100-day moving average. Still, the possibility of a brief consolidation or pullback exists, given that the 14-day relative strength index (RSI) is hovering around the midline, indicating a neutral short-term outlook.
The first key target for this pair is the high of 172.67 reached on August 25th. If the upward momentum continues, a further target around 173.00 could be in sight, aligning with the Bollinger Band and a significant psychological level. A further resistance level lies at 173.90, noted on July 28th.
For support, the initial level to watch is around 171.12 from August 20th. If this is breached, we might see the lower Bollinger Band at 170.65 come into play, along with another important psychological barrier at 170.00.
EUR/JPY Daily Chart
Japanese Yen Questions
Japanese Yen (JPY) ranks among the most traded currencies globally. Its value largely hinges on the performance of the Japanese economy, particularly influenced by the Bank of Japan’s policies, the bond yield differentials between Japan and the US, and trader sentiment, among other factors.
Currency control is one of the Bank of Japan’s key roles, making yen movement crucial. While the BOJ has intervened in the currency market to weaken the yen, they do so cautiously due to political pressures. The ultra-loose monetary policy from 2013-2024 widened the gap with other central banks, leading to a yen depreciation against major currencies, though there have been signs of stabilization recently.
Over the last decade, the BOJ’s commitment to an ultra-loose monetary stance has expanded differences with other central banks, particularly the US Federal Reserve. This gap facilitated a widening yield spread between US and Japanese bonds starting in 2010, alongside a stronger US dollar against the yen. Upcoming changes in BOJ policy and interest rate cuts by other central banks could shrink this gap.
The Japanese yen is often seen as a safe investment. This means that in times of market stress, investors tend to flock to the yen for its perceived stability and reliability. Market turbulence may lead to an increased value of the yen relative to more volatile currencies.
