EUR/JPY fell for a fourth day, trading near 184.40 in European hours on Friday. On the daily chart, price sits just below the upper edge of a descending wedge with lower highs and lower lows, while the range is narrowing.
The pair remains bearish in the near term because it is below the nine-period and 50-period Exponential Moving Averages. The 14-day Relative Strength Index is 44.70, pointing slightly lower and not signalling oversold conditions.
Resistance levels include the nine-day EMA at 184.78, then the 50-day EMA at 184.87, and the wedge top. A break above this area could open a move towards the record high of 187.95, set on 17 April.
Support levels sit near the 12-week low of 181.87, set on 16 March, then the five-month low of 180.81, reached on 12 February. The technical section was produced with help from an AI tool.
As we see the EUR/JPY pair trading around 184.40, the emerging descending wedge pattern is the most critical feature for us to watch. This technical formation suggests that while prices are falling, the selling pressure is easing, often signaling a potential for a sharp price move in the coming weeks. The narrowing range between highs and lows is coiling the market for a breakout.
This setup is reinforced by fundamental factors, particularly recent inflation data from the Eurozone. The flash CPI for April came in at 2.6%, slightly above consensus forecasts, which may temper expectations for aggressive European Central Bank rate cuts. This underlying strength in the Euro could provide the fuel for an upward break from the wedge pattern.
On the other side of the cross, the Bank of Japan has maintained its accommodative monetary policy, reaffirming its dovish stance in its latest meeting summary. The significant interest rate differential between the ECB and the BoJ continues to fundamentally favor a stronger Euro against the Yen. We saw this carry trade dynamic dominate markets for much of 2025, and it remains a powerful force.
Given the potential for an upside breakout, traders should consider buying out-of-the-money call options with an expiration date in late June or July. A strike price around 185.50 would be positioned just above the key resistance cluster of the moving averages and the wedge boundary. If the pair breaks higher, these options could offer significant leverage on a move toward the 187.95 high.
However, since the timing of a breakout is uncertain, a volatility strategy could be prudent. We could purchase a long straddle, buying both a call and a put option with the same strike price near the current 184.40 level. This position profits from a large price swing in either direction, which is a common outcome when a descending wedge pattern resolves.
To manage risk against a pattern failure, we should also look at downside protection. Buying put options with a strike price near the 12-week low of 182.00 would provide a hedge if the bearish trend unexpectedly accelerates. We recall the sharp, sudden currency moves in late 2025, making risk management a priority even when a reversal pattern appears likely.
