EUR/JPY Drops Ahead of Key Eurozone Inflation Data

15/10/2024

Market Overview

On Tuesday, EUR/JPY experienced continued downward pressure after the euro weakened against most major currencies during the Asian session. With fragile economic data emerging from Europe and anticipation of further rate cuts from the European Central Bank (ECB) at Thursday’s policy meeting, the attractiveness of the euro has declined. Expectations of the ECB taking a more dovish stance have made investors hesitant, especially amid ongoing concerns over the eurozone’s economic outlook.

Meanwhile, Japan’s industrial production data came in as expected, showing a contraction, but this has been largely overshadowed by the focus on European inflation reports. Investors are keenly awaiting the upcoming European inflation and industrial output reports, which could further inform the ECB’s decision-making process. If economic pressures increase, it could prompt the ECB to accelerate its plans for rate reductions.

Technical Analysis

The EUR/JPY pair is trading within a triangle pattern on the hourly chart, with sellers currently pushing the price lower after a reversal from the upper boundary of the triangle. At present, the price has reached the first significant support level at 162.889. If the sellers succeed in breaking below this level, further downside targets are identified using Fibonacci retracement levels from the prior uptrend, with immediate support seen at 162.720, followed by 162.480, and finally 162.175, which marks the previous major support zone.

The RSI (Relative Strength Index) remains below 50, currently around 40, indicating a bearish momentum with room for further declines before entering the oversold territory. The MACD (Moving Average Convergence Divergence) also confirms a bearish signal, as the MACD line is below the signal line and the histogram is negative, suggesting ongoing selling pressure. Additionally, price action is below the moving averages, adding to the overall bearish sentiment in the short term.

The triangle pattern continues to dictate the current market direction. A sustained move below the lower boundary of the triangle would signify the continuation of the bearish trend, while a failure to break below would provide some relief for buyers.

Alternative Scenario

If sellers fail to break below 162.889, buyers may re-enter the market, targeting a breakout above the resistance at 163.602, which marks the upper boundary of the triangle pattern. A decisive break above this level would signal the resumption of the prior uptrend and could lead to a test of higher resistance levels, potentially reversing the current bearish outlook.

Key Levels Overview

Resistance Levels:

Resistance 3: 163.602
Resistance 2: 163.265
Resistance 1: 163.057

Current Price: 163.003

Support Levels:

Support 1: 162.889
Support 2: 162.720
Support 3: 162.480
Support 4: 162.175

Key Events to Watch

Tuesday is a busy day for the European economic calendar, with several significant reports scheduled:

Inflation reports from key eurozone economies, including France and Spain, are set to be released. Market expectations suggest continued declines in inflation, which may add pressure on the ECB to consider further rate cuts.

Additionally, eurozone industrial production figures for August are due to be announced. Analysts anticipate this report could show the highest level of growth since January 2022, which might offer a glimmer of optimism for the euro.

These data releases will be closely watched by market participants, as they have the potential to either reinforce the current bearish trend in EUR/JPY or provide some support for the euro, depending on the outcome relative to expectations.

Conclusion

The EUR/JPY pair remains under pressure ahead of critical eurozone inflation data, trading near key support at 162.889. A successful breakdown below this level could see sellers driving the price toward further support zones at 162.480 and 162.175. However, a failure to break lower could give buyers the momentum to attempt a breakout above 163.602 and potentially reverse the current trend. With important eurozone economic data on the horizon, traders should remain vigilant, as these reports could introduce significant volatility into the market and play a decisive role in the direction of the EUR/JPY pair. The focus will remain on the ECB’s policy direction, particularly with growing anticipation of further rate cuts amid continued economic pressures in Europe.