EUR/JPY Sellers Confront Key Support as German Inflation Data Looms

Market Overview

On Wednesday, 27th November 2024, the yen continued to strengthen during European trading, putting pressure on the euro, which dropped to its lowest level against the yen since early October. The uncertainty surrounding the economic outlook in both the Eurozone and Japan adds further complexity to this dynamic.

Technical Analysis

On the daily chart of EUR/JPY, a significant bearish move has pushed the price below the Ichimoku cloud, highlighting the prevailing selling pressure. However, other Ichimoku components, such as Tenkan-sen (red line) and Kijun-sen (blue line), remain inside the cloud, indicating an absence of a decisive trend and a reduction in volatility. The break below the Kumo (Ichimoku cloud) usually suggests continued selling pressure and an increased likelihood of further downside movement.

Currently, the price hovers around the 100% Fibonacci level at 159.356. Key supports to watch include the 141.40% Fibonacci level at 158.970 and the 161.80% Fibonacci level at 158.517, which may serve as potential targets if the decline persists. Additionally, the 200% Fibonacci level at 157.669 could act as the final bearish target, should the selling pressure intensify further.

Momentum oscillators suggest that the bearish sentiment remains strong. The Relative Strength Index (RSI) has reached 31.69, approaching the oversold area, which might lead to a minor rebound in the short term. However, it still indicates that sellers dominate the market. The MACD also remains in negative territory, with the signal line positioned below the MACD line, signalling a continuation of bearish momentum.

As long as the price remains below the Ichimoku cloud and Tenkan-sen and Kijun-sen do not exit the cloud, the bearish scenario remains the most likely. However, the upcoming support levels may slow down the momentum. If the price manages to rebound above the 61.8% Fibonacci level at 160.737 and hold above it, this could signal an attempt by buyers to regain control. A successful break above the resistance at 162.109 might lead to a shift in the overall trend.

Key Levels

• Resistance Levels:
  • 162.109 (Major Resistance)
  • 160.737 (61.8% Fibonacci Retracement)
  • 159.889 (Current Resistance Zone)
• Support Levels:
  • 158.970 (141.40% Fibonacci Extension)
  • 158.517 (161.80% Fibonacci Extension)
  • 157.669 (200% Fibonacci Extension)

Key Events to Watch

On Thursday, 28th November, several key economic events from both the Eurozone and Japan are scheduled, which could influence the EUR/JPY pair. In Japan, data on foreign bond purchases indicates an outflow of JPY 968.9 billion, suggesting a waning appetite for Japanese assets. This could weaken the yen as demand shifts away from Japanese bonds.

Meanwhile, in the Eurozone, the release of monthly and annual inflation data from several German states, including Baden-Württemberg, Bavaria, and North Rhine-Westphalia, will be closely watched. The annual inflation rate in these states is expected to remain between 2.0% and 2.8%, signalling stability in the largest economy in the Eurozone. Additionally, data on the M3 money supply, which is expected to grow by 3.4%, could point to favourable monetary conditions and liquidity, potentially supporting the euro.

Overall, with weaker investment demand in Japan and relatively stable inflation and liquidity data in Germany, EUR/JPY might see support for the euro against the yen. However, weaker-than-expected inflation data or concerns about consumer confidence in Europe could negatively impact the euro.

Conclusion

EUR/JPY remains under pressure as the yen strengthens, with key support levels providing the next targets for sellers. The outlook will depend on upcoming data from both regions, with potential for a minor rebound if key resistances are breached.