The EURJPY currency pair has emerged as a captivating focal point in the realm of forex trading, showcasing notable gains of 5% year-to-date, with back-to-back weeks of gains.
Amidst a backdrop of monetary policy shifts, the pair’s trajectory remains on an upward trajectory, with the Japanese Yen witnessing depreciation despite the Bank of Japan’s (BoJ) move to tighten policy by increasing rates from negative 0.1% to 0.0%. This shift away from an ultraloose monetary stance had been anticipated by markets, leaving the Yen with limited room for appreciation.
The interest rate differential between Europe and Japan is a significant driver behind the EURJPY’s ascent. While the European Central Bank (ECB) has signalled its commitment to addressing inflation through rate hikes over the past year, the BoJ has maintained a relatively relaxed approach, opting for loose policy measures. With the Euro Area’s benchmark rate at 4.5%, a substantial gap exists between European and Japanese interest rates, likely fuelling further upward momentum for the EURJPY pair as markets potentially favour the higher yields offered by European fixed income securities.
Technical
Trading above the 100-day moving average, the EURJPY pair demonstrates an uptrend, while the ascending channel pattern further underscores this upward trajectory.
Support emerged at the 160.280 level, coinciding with the channel’s lower boundary, marking a crucial point of interest. However, as the pair surged towards the upper boundary, reaching 165.354, overbought RSI conditions emerged, signalling a potential stall in further advancement. This resistance prompted a subsequent retracement, with the pair retracing towards the 38.20% Fibonacci Retracement level.
Market sentiment hinges on the pair’s ability to maintain key technical levels. A breakdown below the 38.20% level on high volume could signal persistent selling pressures, potentially opening the door to further downside movement towards the 50% level. Conversely, a resurgence in upside momentum could lead to a retest of the 165.354 resistance level, providing an opportunity for bullish continuation.
Summary
The EURJPY pair reflects a compelling interplay of monetary policy shifts and technical patterns. With an uptrend supported by the ECB’s elevated rates, market sentiment potentially favours the Euro’s higher yields. Attention is drawn to key technical levels, notably the 38.20% Fibonacci Retracement and the 165.354 resistance, shaping future price action.
Sources: Bank of Japan, European Central Bank, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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