The EUR/JPY pair remains strong, trading above 185.20 in the early European session. There are ongoing worries about when the Bank of Japan (BoJ) will raise interest rates, which is putting pressure on the Japanese Yen. Additionally, political uncertainty in Japan, including the possibility of early elections, further affects the Yen. The BoJ’s monetary policy plays a key role in the Yen’s performance. The market perceives the Bank’s approach as cautious. Potential verbal interventions from Japanese officials may prevent the Yen from falling too much. Finance Minister Satsuki Katayama voiced worries about the Yen’s weakness.

Bullish Momentum and Technical Indicators

The EUR/JPY pair shows strong bullish momentum, staying above the 100-day Exponential Moving Average (EMA) at 178.68. The Relative Strength Index (RSI) suggests solid but not overly bought conditions. The pair has moved above the upper Bollinger Band at 185.15, indicating an extended upward movement. Lower volatility could signal a market breakout or a return to average. The Yen’s value is closely tied to Japan’s economic situation and the BoJ’s policy. Currency interventions are uncommon because of concerns from trading partners. The previous loose monetary policy has affected the Yen’s value against other currencies, but potential changes in 2024 could offer some support. Differences in bond yields between Japan and the US also impact the Yen’s exchange rate. The US Dollar has benefited from this disparity in the past, but recent adjustments in BoJ policy are narrowing the gap.

Trading Strategy and Market Outlook

The overall trend for EUR/JPY is upward. Currently trading around 185.20, the momentum is strong, mainly due to the weak Yen and the BoJ’s slow approach to interest rate increases. Last quarter, Japan’s core inflation slightly decreased to 2.1%, giving the BoJ more reason to maintain its cautious pace. Given the positive momentum, purchasing call options on EUR/JPY is a straightforward way to capitalize on this trend. The Relative Strength Index is still below the overbought level at 66.82, indicating there is still potential for price increases before a significant pullback. This strategy allows for gains while limiting risk to the cost of the option. Caution is advised regarding a possible pullback, especially since the price has reached the upper Bollinger Band. Warnings about the Yen’s weakness from Japanese officials could pose a risk; previous interventions in late 2024 serve as a reminder of this danger. Therefore, traders might think about buying protective put options, with a strike price around the initial support level of 183.77. The narrowing of the Bollinger Bands shows that market volatility has been low recently. This situation makes option premiums more affordable, providing an opportunity to position for increased volatility in the future. An upcoming early election in Japan could serve as a trigger for a sharp market breakout. It’s also crucial to note the Euro’s stability in this pair. Recent data from Eurostat revealed that Eurozone GDP grew by a modest 0.2% last quarter, with inflation slightly above the European Central Bank’s 2% target. This indicates that the ECB is likely to maintain its current policy, supporting the Euro against a fluctuating Yen. Create your live VT Markets account and start trading now.

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