EUR/JPY has fallen for the third day in a row, now trading at around 183.70. The currency pair remains within an upward channel, indicating a bullish trend. The 14-day Relative Strength Index stands at 62.20, showing positive momentum, with support above the nine-day and 50-day Exponential Moving Averages.

Potential Upward Movement

The short-term average is higher than the medium-term average, suggesting a chance for more upward movement. EUR/JPY could rise toward 184.95, which was last seen on December 22, aligning closely with the key level of 185.00. If it breaks above this, the pair might test the upper boundary around 185.70. Immediate support is at the nine-day EMA of 183.37, followed by the lower boundary of the ascending channel. If the price drops below this channel, it could shift to a downward trend, possibly hitting a two-week low of 181.57 from December 17. Further declines may aim for the 50-day EMA near 180.15. In a currency performance comparison, the Euro is generally weak, especially against the Japanese Yen. Data reveals that the Euro has fallen against several major currencies, while the Yen has gained consistently in various pairings. Currently, EUR/JPY is experiencing a slight pullback after a strong run, but the overall trend remains bullish. This dip toward the 183.50 level may offer a chance to enter long positions. The underlying technical aspects, like moving averages, still indicate a strong market.

Interest Rate Differences

The differences between central bank policies are driving this currency pair higher. Recently, the European Central Bank kept its interest rate at 3.25%, citing stubbornly high core inflation. In contrast, the Bank of Japan continues its negative interest rate policy with no immediate signs of change. This gap in interest rates makes holding the Euro more profitable than the Yen, boosting the carry trade that has pushed the pair to record highs. Eurozone flash inflation for November was 2.8%, which is still sufficiently high to prevent the ECB from cutting rates in the near future. This environment supports further strength for EUR/JPY. In the coming weeks, we might consider buying call options with a strike price around the recent high of 185.00. This strategy allows us to benefit from a possible rebound while limiting risk. It’s crucial to monitor whether the price stays above the immediate support level of 183.37. We must also be wary of potential intervention from Japanese authorities to strengthen the Yen. In 2024, they intervened multiple times when the currency weakened significantly. A sudden announcement from the Bank of Japan or Ministry of Finance poses a key risk to this bullish outlook. If the pair decisively drops below the ascending channel, it would signal a weakening momentum. In this case, buying put options could offer protection against a deeper correction toward the 181.50 level, indicating that the current dip might be more than just a temporary pause in the uptrend. Create your live VT Markets account and start trading now.

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