EUR/JPY has weakened to around 184.35 in the early European session on Monday. The first barrier for upward movement is at 185.00, while support is currently at 183.13. The Japanese Yen is strengthening against the Euro due to rising tensions between the US and Venezuela, alongside geopolitical issues between Israel and Iran. Japanese officials, particularly Atsushi Mimura, who is the top currency official, are voicing concerns about currency fluctuations, which may support the JPY.

Technical Analysis of EUR/JPY

On the 4-hour chart, EUR/JPY remains above a rising 100-period EMA at 182.02, showing a bullish outlook in the short term. The Bollinger Bands are wide, with the price close to the upper band at 185.00, indicating strong upward momentum. The RSI is at 69.51, showing significant buying pressure, close to overbought territory. If the price cannot break through the upper band, we may see some consolidation. Pullbacks might test the middle band at 183.13, while a clear break above could lead to further gains. Closing below the midline could result in price normalization. The Japanese Yen is influenced significantly by the Bank of Japan’s policies and the difference between Japanese and US bond yields. Its status as a safe-haven currency often increases its value during times of market stress. With EUR/JPY around 184.35, the immediate resistance at 185.00 is an important barrier. The high RSI reading of 69.51 suggests that the upward momentum might soon slow down. For derivative traders, this could be a good opportunity to sell short-dated call options just above the 185.00 mark, anticipating potential consolidation in the next few days.

Market Dynamics and Future Outlook

Safe-haven flows are strengthening the Yen, fueled by ongoing geopolitical concerns. Last week, data from the Japan Cabinet Office revealed a slight decline in consumer confidence to 38.5 for December, reflecting these global uncertainties. This steady demand for the Yen could limit significant upward movement for the EUR/JPY pair before the year’s end. Recall the Bank of Japan’s crucial policy change in 2024, which initiated the shift away from its ultra-loose monetary policy. Looking ahead to the BoJ’s January meeting, the market is currently pricing in about a 40% chance of another small rate increase, especially as the recent Tokyo Core CPI remains stubbornly above 2.5%. This contrasts with the European Central Bank, which has indicated a continued pause, creating a policy divergence that may benefit the Yen. The widening Bollinger Bands signal increased volatility, an essential factor for strategy. Given the mixed signals of a bullish trend and potential headwinds, buying long-dated put options might provide a valuable hedge against a sharp reversal. A decisive break below the 183.13 support level would be a crucial trigger, potentially opening the way to the 182.00 area. Create your live VT Markets account and start trading now.

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