- EUR/JPY is expected to reach around 171.25 in early European trading on Thursday.
- The outlook for this cross appears positive beyond the 100-day EMA, although bearish signals from the RSI should be monitored closely.
- The immediate resistance level is at 172.67, while the first support level to keep an eye on is 170.60.
The EUR/JPY cross lost some traction, drifting to about 171.25 during the early European hours on Thursday. This decline comes amid growing concerns regarding a political crisis in France, leading to a weakening euro (EUR) against the Japanese yen (JPY). The situation has worsened for France with François Beyloux’s minority government seemingly headed for collapse due to stark divisions over a contentious austerity budget and plans to reduce debt.
From a technical standpoint, the outlook for EUR/JPY remains constructive as it has surpassed the key 100-day exponential moving average (EMA) on the daily chart. However, a period of consolidation or even a brief downturn can’t be discounted, especially since the 14-day relative strength index (RSI) is lingering below the midlevel of around 46.65.
On a more positive note, the first strong resistance appears at the peak of 172.67, noted on August 25th. If trading remains above this mark, it could gain momentum, aligning with the Bollinger band cap and the round number target of 173.00. The next resistance zone further up is identified at the high of 173.90 from July 28th.
If the trends turn bearish, the lower limit indicated by the Bollinger band sits at 170.60, serving as the first support point for EUR/JPY. Breaching this level could push the cross down towards a psychological mark of 170.00. Further downside might direct attention to 169.82, which was the lowest observed on August 5th.
EUR/JPY Daily Chart
Japanese Yen Questions
Japanese Yen (JPY) ranks among the most traded currencies globally, primarily influenced by Japan’s economic performance and the Bank of Japan’s (BOJ) policies. Factors like bond yield discrepancies between Japan and the US also play a role, alongside trader sentiment.
One of the BOJ’s key responsibilities includes currency control, which makes yen movements crucial. While the BOJ has intervened in the currency market to curb the yen’s value, it tends to be cautious due to potential political repercussions. The ultra-loose monetary policy from 2013 to 2024 led to a widening gap in policy approaches compared to other major central banks, depreciating the yen against its counterparts. However, recent adjustments have provided some support as the BOJ gradually unwinds this policy.
Throughout the last decade, the BOJ’s adherence to a loose monetary policy has led to growing disparities with other central banks, particularly the US Federal Reserve. This has contributed to a widening gap between US and Japanese bond yields since 2010, favoring the US dollar against the yen. The BOJ’s forthcoming decisions, alongside interest reductions from other major institutions, might start to narrow this gap.
The Japanese yen is often viewed as a safe investment option. During times of market volatility, investors tend to flock to the yen for its stability and reliability, which could enhance its value compared to riskier currencies.
