Key Moments
- EUR/JPY trades near 185.10 in early European dealings on Thursday as upside momentum eases.
- Rising geopolitical tensions tied to US-Iran developments support the safe-haven Japanese Yen and weigh on the cross.
- Key technical levels cluster around 185.65 on the upside and 184.70-184.40 on the downside, with a still-bullish broader bias.
EUR/JPY Softens as Geopolitical Tensions Aid the Yen
EUR/JPY edged lower to around 185.10 during Thursday’s early European session, with the pair losing some of its recent traction. Although the broader tone for the cross remains constructive, the latest pullback and neutral Relative Strength Index (RSI) readings suggest that a period of consolidation cannot be excluded in the near term. Immediate resistance is identified at 185.65, while initial support emerges around 184.70.
Escalating tensions involving the United States and Iran have been lending support to safe-haven currencies, including the Japanese Yen (JPY), creating a headwind for EUR/JPY. According to CNN, “Iran’s Islamic Revolutionary Guard Corps (IRGC) launched an attack targeting an American air base, which they said was the source of US strikes on Iranian targets hours before. The US strikes targeted Iranian drones and a launch site near the Strait of Hormuz.”
Event Risk: Tokyo CPI in Focus
Market participants are closely monitoring the upcoming Tokyo May Consumer Price Index (CPI) release, scheduled for Friday. A weaker-than-anticipated CPI reading could pressure the Japanese Yen and potentially offer EUR/JPY some support in the short term, while a stronger outcome may reinforce the Yen’s safe-haven appeal.
Technical Picture: Bullish Structure, But Consolidation Likely
On the daily chart, EUR/JPY maintains a mildly bullish configuration as it trades above the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands, both positioned near 184.71. This alignment underpins the broader uptrend, even as price action moderates. The RSI hovers around the 50 mark, signaling neutral but slightly constructive momentum as spot remains oriented toward the upper Bollinger band.
Key levels currently shaping the technical backdrop include:
| Level | Indicator / Context | Approximate Price | Bias |
|---|---|---|---|
| Immediate resistance | Upper Bollinger band | 185.65 | Break higher could extend the advance |
| Initial support | Middle Bollinger band | 184.70 | First downside cushion |
| Secondary support | 100-day SMA | 184.40 | Key trend support |
| Deeper support | Lower Bollinger band | 183.78 | Potential floor in a corrective pullback |
A decisive move above 185.65 would signal scope for a renewed leg higher within the prevailing uptrend. On the downside, a slide through the 184.70 area, and especially below the 100-day SMA at 184.40, would point to a deeper corrective phase, with the lower Bollinger band near 183.78 offering additional support if selling pressure intensifies.
Background: What Drives the Japanese Yen?
The Japanese Yen (JPY) is among the most actively traded currencies globally. Its valuation is influenced by the performance of the Japanese economy and, more specifically, by Bank of Japan (BoJ) policy decisions, interest rate differentials – particularly between Japanese and US bond yields – and overall risk sentiment in financial markets, among other elements.
Bank of Japan Policy and Yield Differentials
One of the Bank of Japan’s mandates is currency control, making its actions pivotal for the Yen. The central bank has, at times, intervened directly in foreign exchange markets, typically to curb Yen strength, though such interventions are infrequent due to political sensitivities with major trading partners.
The BoJ’s ultra-loose monetary stance between 2013 and 2024 contributed to a persistent weakening of the Yen against other major currencies, reflecting growing policy divergence relative to other central banks. More recently, the gradual unwinding of this ultra-accommodative approach has helped provide some support to the currency.
Over the past decade, the persistence of very easy BoJ policy contrasted with tighter policies elsewhere, especially at the US Federal Reserve, widening the spread between 10-year US and Japanese government bond yields. This yield gap generally favored the US Dollar over the Yen. The BoJ’s move in 2024 to begin phasing out its ultra-loose framework, combined with interest rate cuts by several other major central banks, has started to narrow that differential.
Risk Sentiment and the Yen’s Safe-Haven Role
The Japanese Yen is widely regarded as a safe-haven currency. In periods of heightened market stress or uncertainty, investors often increase exposure to the Yen due to its perceived stability and reliability. As a result, episodes of turbulence in global markets tend to bolster the Yen’s value relative to currencies considered riskier, while calmer conditions can see that support fade.
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