EUR/JPY slipped after two days of gains, trading near 185.60 in early European hours on Tuesday. Despite the pullback, the cross retained a mild bullish tilt as it stayed above the nine-day EMA at 185.39 and the 50-day EMA at 185.12. The 14-day RSI sat around 54, leaving momentum in neutral territory while still consistent with a constructive tone so long as prices hold above the medium-term average.
On chart structure, daily price action remained within an ascending channel, keeping the broader bias intact. Resistance was flagged at the six-week high of 186.21 set on 5 June, and a move beyond that would bring the all-time high of 187.95 from 17 April into view, before the channel’s upper boundary near 188.20. Support begins at the two EMAs, and a break below them would shift the picture lower towards the channel base around 184.70, then the near four-month low of 181.87 from 16 March and the six-month low at 180.81 reached on 12 February.
Strategy Considerations Amid Mild Bullish Bias
Given the mild bullish bias in EUR/JPY, we see the current pause around 185.60 as a potential entry point. The pair remains firmly above its key moving averages and within an ascending channel, suggesting the underlying uptrend is intact. Therefore, we should consider strategies that benefit from a gradual move higher in the coming weeks.
We believe setting up bull call spreads is an appropriate response to the constructive, but not overbought, RSI reading. For instance, buying a July 186.50 call option while simultaneously selling a July 188.00 call option could capture a move towards the all-time high. This defined-risk strategy aligns with the potential resistance points identified.
Supportive Fundamentals and Income Generation Opportunities
This cautious optimism is supported by fundamentals, as recent Eurozone flash PMI data for June showed a slight uptick in the services sector, bolstering the Euro. However, recent inflation figures have moderated, with May’s final CPI coming in at 2.3%, suggesting the European Central Bank may not be overly aggressive. This reinforces the idea of a steady, rather than explosive, climb for the pair.
On the other side, the yen’s weakness persists due to the Bank of Japan’s continued dovish policy stance, creating a favorable interest rate differential. Historically, such periods of policy divergence, similar to what was seen in late 2023, have fueled sustained rallies in EUR/JPY. We expect this dynamic to continue providing underlying support for the cross.
Considering the immediate support at the nine-day EMA of 185.39, selling out-of-the-money put options could be an effective way to generate income. We might look to sell July puts with a strike price below the 184.70 channel support, collecting premium with the view that the uptrend will hold. The current one-month implied volatility of around 8.9% makes these premiums reasonably attractive.
