The Japanese Yen (JPY) is drawing market attention as traders anticipate potential shifts in the Bank of Japan’s (BOJ) monetary policy. While Yen weakness has been a prevailing theme, recent technical formations suggest opportunities for Yen strength, particularly in certain currency crosses. This analysis delves into EUR/JPY, highlighting why it might be a more compelling pair for those anticipating a stronger Yen compared to USD/JPY and GBP/JPY.
Despite a broader Euro weakness across other currency pairs, EUR/JPY has shown resilience. However, a closer look reveals a pattern of lower lows and lower highs, making EUR/JPY an increasingly attractive candidate for trading strategies predicated on Yen appreciation. This setup becomes particularly relevant as market participants look ahead to the BOJ’s upcoming policy review in about a month, which could signal a move towards a more hawkish stance in 2025.
While USD/JPY closely mirrors the dynamics of the US Dollar Index (DXY) and GBP/JPY displays unique patterns influenced by long-term historical levels, EUR/JPY presents a distinct bearish appeal in the context of Yen strength. Let’s examine the technical landscape of EUR/JPY in detail.
EUR/JPY Technical Analysis: Setting Up for Potential Yen Strength
Unlike USD/JPY and GBP/JPY, which are currently trading above their 200-day moving averages and exhibiting support at recent levels, EUR/JPY has recently tested its 200-day moving average as resistance. This divergence is a key factor in considering EUR/JPY for Yen-strength strategies.
Last week, EUR/JPY encountered resistance at the 200-day moving average, coinciding with the 165.00 level. Simultaneously, while USD/JPY found support at 153.41 and GBP/JPY at 193.61, EUR/JPY broke below the prior support level of 161.93, establishing a fresh lower low. Although a bounce has ensued, the current daily candle for EUR/JPY remains red, contrasting with the green candles observed in both GBP/JPY and USD/JPY at the time of writing.
This price action positions EUR/JPY as potentially more favorable for traders anticipating Yen strength compared to USD/JPY and GBP/JPY. The confluence of resistance around 165.00 and the break below prior support levels underscore this bearish bias in EUR/JPY.
EUR/JPY Daily Price Chart
Chart prepared by James Stanley, EUR/JPY on Tradingview
EUR/JPY Shorter-Term View: Bearish Momentum Building
Examining the shorter-term, four-hour chart for EUR/JPY further emphasizes the bearish setup. While USD/JPY and GBP/JPY have shown pullbacks to support at previous resistance levels, EUR/JPY has experienced a deeper retracement. Before the recent sell-off, EUR/JPY formed a lower high at 163.90. This morning’s trading saw price action dip to 163.21 before a bounce. Currently, the pair is testing the 163.70 swing level.
Crucially, the 163.90 level, the recent lower high, emerges as a key area for sellers to defend. Holding below this level would reinforce the short-term bearish momentum in EUR/JPY. Looking at a broader perspective, the 165.00 level, where bulls previously failed to sustain upward movement last week, remains a critical resistance point. Maintaining price action below 165.00, closely aligned with the 200-day moving average, would solidify the potential for further bearish development in EUR/JPY.
EUR/JPY Four-Hour Price Chart
Chart prepared by James Stanley, EUR/JPY on Tradingview
Conclusion: EUR/JPY Favored for Yen Strength Scenarios
In summary, while the broader Yen market dynamics are influenced by factors such as the upcoming Bank of Japan policy review, EUR/JPY technical analysis suggests it may be a more compelling pair to watch for potential Yen strength in the near term. The pair’s inability to overcome the 200-day moving average and the establishment of lower lows and lower highs differentiate it from USD/JPY and GBP/JPY, which exhibit more mixed or Yen-weakness tendencies.
Traders anticipating Yen appreciation may find EUR/JPY particularly attractive, provided that key resistance levels, notably 163.90 and 165.00, hold firm. Monitoring these levels, alongside developments surrounding the Bank of Japan’s policy outlook, will be crucial in assessing the validity and potential of Yen-strength strategies in EUR/JPY.
— written by James Stanley, Senior Strategist
