The EUR/JPY currency pair dropped to around 179.70 during the early European session on Tuesday, pulling back from previous highs. Despite this dip, the weakening Japanese Yen suggests the pair has limited room to fall further. Japan’s Prime Minister stressed the importance of keeping interest rates low to boost growth, which affects the Yen’s performance. On a technical level, the EUR/JPY remains strong above the 100-day EMA, with a bullish RSI indicating good conditions for more gains.

Psychological Resistance and Support Levels

The psychological resistance for EUR/JPY is at 180.00. If the pair stays above this level, it could rise further, with the next resistance point at 181.00. On the downside, support is at 178.56, and the pair could drop further to 176.28 and 175.80. The Japanese Yen (JPY) is influenced by multiple factors, including Japan’s economic health, the Bank of Japan’s (BoJ) policies, and global bond yield differences. The BoJ’s decisions play a crucial role in shaping the Yen’s value. In recent years, the Yen has weakened against other currencies due to the BoJ’s loose monetary policy, though recent changes are starting to strengthen the Yen. Market sentiment also affects the Yen since it’s seen as a safe-haven currency that strengthens during economic uncertainty. The narrowing gap between Japanese and US bond yields is affecting the Yen’s value as well. Currently, the EUR/JPY pair is testing the important 180.00 psychological level after reaching new highs. Trading around 179.70 shows some hesitation in the market. This key moment offers traders a chance to prepare for either a breakout or a reversal.

Market Opportunities and Risk Sentiment

The underlying upward trend looks strong as prices remain above the 100-day moving average. This technical strength aligns with differences in monetary policy between the European Central Bank (ECB) and the Bank of Japan (BoJ). Recent data shows Eurozone core inflation steady at 2.6%, causing the ECB to be cautious about cutting rates. Meanwhile, Japan’s inflation figure stands at 1.9%, allowing the BoJ to keep its supportive approach. This policy gap has driven Yen weakness over the past year, making a bullish case for EUR/JPY even more attractive. This trend has been consistent since the BoJ began its gradual policy shift in 2024, which has not significantly narrowed the interest rate difference. Traders looking for a breakthrough might consider buying call options with strike prices of 180.50 or 181.00 to take advantage of potential gains while managing risk. However, caution is warranted at the 180.00 level, which acts as major resistance. If it cannot break through, a sharp pullback could happen. Global risk sentiment is fragile: the International Monetary Fund (IMF) recently lowered its global growth forecast for 2026 from 3.2% to 2.9% due to renewed trade tensions. Any flight to safety would likely benefit the Japanese Yen, known as a safe-haven currency. If the cross fails at this peak, watch the first key support level at 178.56. A decisive break below this could point to a deeper correction towards 176.30. Traders looking to hedge against this downside or speculate on a reversal might consider buying put options near the 179.00 strike price, targeting these lower levels. With tensions at this record high, increased volatility is likely in the coming weeks. A non-directional strategy, such as a long straddle, could be useful. This strategy involves buying both a call and a put option at the same strike price, like 180.00, to profit from significant price movements in either direction. Create your live VT Markets account and start trading now.

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