- EUR/JPY strengthens to near 166.50 in Monday’s early European session.
- The positive view of the pair prevails above the key 100-day EMA with the bullish RSI indicator.
- The key resistance level emerges in the 166.90-167.00 zone; the first support level to watch is 164.95.
The EUR/JPY cross extends its upside to around 166.50 during the early European trading hours on Monday. A generally positive tone around the equity markets weighs on the safe-haven currency like the Japanese Yen (JPY). However, the escalating geopolitical tensions in the Middle East might cap the upside for the cross.
All eyes will be on the Bank of Japan (BoJ) interest rate decision on Tuesday, which is widely expected to hold its benchmark rate steady at 0.5% at the June meeting.
Technically, the constructive outlook of EUR/JPY remains in place as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is reinforced by the Relative Strength Index (RSI), which stands above the midline near 67.75, displaying bullish momentum in the near term.
The crucial resistance level for the cross emerges in the 166.90-167.00 zone, representing the upper boundary of the Bollinger Band and psychological level. A decisive break above this level could see a rally to 170.75, the high of May 31, 2024. Further north, the next hurdle to watch is 171.60, the high of April 29, 2024.
In the bearish case, the low of June 13 at 164.95 acts as an initial support level for EUR/JPY. A breach of this level could drag the cross toward 162.90, the low of June 5. The additional downside filter to watch is located at 162.60, the 100-day EMA.
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.
