The Euro is weakening against the Japanese Yen due to fresh worries about EU-US trade talks and uncertainty in Japan after the elections. The EUR/JPY pair is stable above the 172.00 support level, although the upward momentum is fading. Japan’s election results provided a short-term boost to the Yen. Prime Minister Ishiba’s coalition lost its upper-house majority, but his government is expected to stay in power and continue trade discussions with the US.

Post-Election Clarity

The clarity following the elections is positive, as it avoids the risk of a low-tax opposition agenda. Japan is eager to settle trade issues with the US and prevent a 25% mutual tariff that would target many of its exports. The European Union is facing increasing trade risks. Planned US tariffs on EU imports, particularly affect Germany, where the economy relies heavily on exports. A survey from the European Central Bank shows that Eurozone profit margins are under pressure, which may lead to careful decisions from the ECB in the future. The EUR/JPY pair pulled back from its multi-year high of 173.25, currently consolidating above the 172.00 support level. The momentum is easing, as shown by the RSI moving out of the overbought zone. Future price action will depend on crucial levels like the 20-day SMA. Tariffs are imposed to protect local businesses, but they can increase prices and lead to trade conflicts. Donald Trump’s tariffs target imports from Mexico, China, and Canada to help US producers.

Trade Tensions And Market Reactions

With the slowing bullish momentum in EUR/JPY, derivative traders should be cautious about long positions. The difficulty in maintaining the recent multi-year highs suggests limited upward potential for now. It’s important to monitor if the 172.00 support level holds against increasing geopolitical and economic pressures. European trade risks are a major concern, especially after German factory orders fell unexpectedly, indicating that the export-driven economy is struggling. The European Central Bank’s survey also highlights profit margin pressures, leading to the likelihood of cautious policies. This suggests continued challenges for the Euro. In contrast, the clarity following the Japanese elections offers more stability for the Yen. Prime Minister Ishiba’s government is keenly focused on trade talks, with the US being Japan’s top export market, accounting for over $14 billion in exports recently. This need to prevent reciprocal tariffs may strengthen the Yen. The tariff plans from the former US president introduce substantial uncertainty, which typically favors safe-haven assets. The market fluctuations during the 2018-2019 trade disputes showed that currencies like the Yen often gained over the Euro. If similar policies are implemented again, the Euro could be at greater risk due to the EU’s larger direct trade surplus with the US. We see a chance to buy EUR/JPY put options to prepare for a potential decline, especially if prices drop below the 172.00 support level. This approach limits risk while allowing for exposure to downward movements driven by rising trade concerns. It’s a more cautious strategy than outright shorting, especially as the RSI leaves the overbought area. Moving forward, we will watch the 20-day SMA as an indicator of the short-term trend. Upcoming inflation data from the Eurozone and any official updates on EU-US trade discussions will be crucial for price movements. A significant drop below the current support zone would confirm our negative outlook for the pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now