EUR/JPY Price Forecast: Retains bullish bias near 172.50, overbought RSI warrants caution for bulls
- EUR/JPY strengthens to around 172.45 in Tuesday’s early Asian session.
- The positive bias of the cross prevails above the 100-day EMA, but the overbought RSI condition might cap its upside.
- The immediate resistance level is seen at 173.20; the initial support level is located at 170.81.
The EUR/JPY cross trades in positive territory near 172.45 during the Asian trading hours on Tuesday. The rising expectation that the Bank of Japan (BoJ) would keep interest rates low for longer than it wants could weigh on the Japanese Yen (JPY) against the Euro (EUR). The release of ZEW Survey from Germany will be released later on Tuesday.
Technically, EUR/JPY keeps the bullish vibe on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) stands above the midline near 73.10, indicating the overbought RSI condition. This suggests that further consolidation or temporary sell-off cannot be ruled out before positioning for any near-term EUR/JPY appreciation.
The first upside barrier for the cross emerges at 173.20, representing the upper boundary of the Bollinger Band. Extended gains could see a rally to 174.52, the high of July 3, 2024. The additional upside filter to watch is 175.43, the high of July 11, 2024.
On the other hand, the initial support level for the cross is located at 170.81, the low of July 11. A breach of this level could expose the 170.00 psychological level. The next contention level to watch is 169.04, the low of July 2.
EUR/JPY daily chart
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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