EUR/JPY Buyers Eye Short-Term Upside Amid Diverging Central Bank Policies
Market Overview
On Monday, the EUR/JPY pair is anticipated to remain supported in the short term, primarily due to contrasting economic outlooks and monetary policies between the Eurozone and Japan. The European Central Bank (ECB) continues to adopt a hawkish stance, focusing on higher interest rates to combat persistent inflation across the Eurozone. In contrast, the Bank of Japan (BOJ) maintains its ultra-loose monetary policy, keeping interest rates at historically low levels to support economic growth and counteract deflationary pressures. This divergence in policy has been a key driver of the euro’s strength against the yen.
Furthermore, the Eurozone economy, despite facing some challenges, shows signs of recovery, with strong consumer spending and improving industrial production. On the other hand, the Japanese economy continues to struggle with slow growth and limited inflationary pressures. However, several risks remain, including potential geopolitical tensions in Europe and any unexpected changes in the BOJ’s policy stance, which could lead to market volatility and impact the EUR/JPY pair’s trajectory.
Technical Analysis
In the one-hour chart, EUR/JPY has broken above its mild descending trendline and is currently trading between the support level at 161.579 and the resistance at 161.925. If buyers manage to break through this short-term resistance, the pair is expected to target 162.171 as its first objective. A sustained break above this key resistance could pave the way for higher targets at 162.484 and 162.830.
Oscillator Confirmation
RSI (Relative Strength Index): The RSI is trending upward, indicating bullish momentum, which suggests that buying pressure is increasing.
MACD (Moving Average Convergence Divergence): The MACD is in a mixed stance, signaling potential for both bullish and bearish moves. However, recent histogram readings suggest a shift towards bullish sentiment.
Moving Averages: The pair is trading above the 100-period moving average, which further supports the bullish outlook in the short term.
Alternative Scenario
If the pair fails to break above the resistance level of 161.925, sellers may be encouraged to test the support levels at 161.579 and 161.020. A break below 161.020, which is below the 100-period moving average, would negate the short-term bullish scenario and potentially shift the trend downward.
Key Levels
Resistance Levels:
- Resistance 4: 162.830
- Resistance 3: 162.484
- Resistance 2: 162.171
- Resistance 1: 161.925
Current Price: 161.859
Support Levels:
- Support 1: 161.579
- Support 2: 161.020
Key Events to Watch
Traders should keep an eye on the Purchasing Managers’ Index (PMI) reports from Germany and France—two leading economies in the Eurozone. These reports could cause volatility in the euro. Meanwhile, the only significant report for Japan is the monetary base, scheduled for release on Tuesday. The monetary base measures changes in the total amount of domestic currency in circulation and current account deposits at the Bank of Japan. An increase in the money supply often leads to additional spending, which in turn can drive inflation.
Conclusion
The EUR/JPY pair is currently displaying a bullish bias, supported by divergent monetary policies between the ECB and BOJ. Technical indicators suggest that a break above 161.925 could lead to further gains, with targets at 162.171, 162.484, and 162.830. However, failure to breach this resistance could result in a pullback to support levels at 161.579 and 161.020. As always, traders should remain vigilant to upcoming economic data and potential geopolitical developments that could impact market sentiment.
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