EUR/JPY Rises, But Downside Bias Holds Below 100-Day Average

Key Moments

EUR/JPY Supported Intraday Despite Risk Headwinds

The EUR/JPY pair is trading in positive territory around 184.20 during the early European session on Monday. Despite the intraday advance, the scope for additional upside may be constrained as market participants remain wary of a fragile ceasefire between the US and Iran.

Over the weekend, the US and Iran exchanged fresh verbal attacks before agreeing to suspend hostilities and hold talks in Qatar on Tuesday. The uncertainty surrounding these discussions is weighing on risk-oriented assets, including the Euro (EUR) against the Japanese Yen (JPY).

Safe-Haven Support for JPY and Policy Watch in Europe

Concerns about a possible intervention in currency markets by Japanese authorities are also lending support to the Yen. Japan’s Chief Cabinet Secretary Minoru Kihara stated last week that officials are prepared to take appropriate measures against foreign exchange moves if necessary.

At the same time, attention is turning to the European Central Bank’s (ECB) annual forum this week, as investors monitor shifts in central bank policy while oil prices ease and equity markets remain volatile. ECB President Christine Lagarde is scheduled to open the event on Monday. Any hawkish tone from policymakers could help temper downside pressure on the Euro in the near term.

Technical Outlook: Bearish Bias Below Clustered Resistance

On the daily chart, EUR/JPY maintains a negative short-term posture, as the cross continues to trade under the 100-day moving average and the middle line of the Bollinger Bands. These overlapping technical levels are acting as a cap on price, reinforcing a zone of dynamic resistance.

The 14-day Relative Strength Index (RSI) stands at 42.65, holding under the neutral 50 mark. This positioning points to waning bullish momentum rather than an oversold condition.

On the downside, initial support is located around the lower Bollinger Band near 183.55, which represents the first notable demand area that could slow the current retracement. A decisive move below this band would likely open the door to a deeper corrective phase.

On the upside, a daily close back above the 100-day moving average at 184.55 is required to alleviate immediate downside pressure. Such a move would clear the way for a potential advance toward the Bollinger middle band around 184.95, followed by the upper band at 186.35.

(The technical analysis of this story was written with the help of an AI tool.)

Japanese Yen: Key Drivers Overview

What influences the Japanese Yen?

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.

Role of the Bank of Japan

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.

Impact of Yield Differentials

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.

Risk Sentiment and Safe-Haven Flows

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.