Recently, the EURJPY currency pair’s performance has garnered significant attention as it navigates through fluctuations and pivotal shifts in monetary policy. Over the past weeks, observers witnessed a compelling narrative unfold.
After a commendable two-week ascent, the EURJPY pair experienced a subtle retreat, shedding a marginal 21 basis points last week. However, this slight decrease fails to fully capture the broader story surrounding the Japanese Yen, which has been subject to close examination.
The Bank of Japan recently terminated eight years of negative interest rates, marking a ten basis point hike, and indicated its intent to navigate a tightening approach cautiously. This cautious approach reverberated through the currency markets, notably weakening the Yen, which descended to a 15-year low against the Euro.
As the year progresses, the EURJPY pair has already notched an impressive nearly 5% gain, potentially heralding a fifth consecutive year in positive territory. Such resilience finds its roots in the interest rate differentials favouring the Euro, which boasts higher-yielding prospects compared to the Yen. With the backdrop of shifting monetary policies and economic fundamentals, one cannot help but ponder: Will the EURJPY maintain its upward trajectory, securing yet another year in the green?
Technical
The EURJPY price action unveils a compelling narrative characterized by an ongoing uptrend supported by technical indicators. The pair exhibits a clear ascending channel pattern on the daily chart, reinforcing the upward momentum. Notably, the price trading above the 100-day moving average confirms the bullish sentiment.
Amidst this ascent, significant levels come into play. Support solidified at 160.211, aligning with the channel’s lower boundary following a brief downturn. Conversely, at 165.355, buying momentum encountered resistance, amid overbought RSI conditions.
A subsequent downturn unfolded, retracing towards the 50% Fibonacci Retracement level. However, the emergence of a daily buying candle at this level hints at potential upside interest, suggesting a bullish reversal might be in the offing. Should this reversal hold ground, attention will likely turn towards a retest of the 165.355 resistance level. Conversely, a breakdown below the 50% level, especially with high volume, could pave the way for a deeper retracement towards the 61.80% Golden Ratio level.
Summary
The EURJPY’s trajectory, buoyed by interest rate differentials and recent BoJ policy shifts, remains poised for further exploration. With support at 160.211 and resistance at 165.355, attention centres on potential bullish reversals or deeper retracements, indicating a pivotal juncture for traders. Euro Area inflation data will be in the spotlight today, poised to influence the pair’s short-term trajectory.
Sources: Bank of Japan, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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