The EUR/JPY pair has shown a positive bias over the last two trading sessions, reflecting a tentative attempt to push higher. Despite this, the currency pair remains confined within its established weekly range, suggesting a lack of decisive momentum from traders. The current market dynamics are influenced by a mix of technical and fundamental factors, which could drive the pair towards a significant breakout or reversal in the near term.
Key Takeaways
- Trend: EUR/JPY continues to trade within a narrow weekly range, facing resistance around 161.00.
- Support and Resistance Levels: Immediate resistance lies at 161.00, with potential upside targets at 161.45 and 162.00. Downside support is seen at 159.00 and 158.20.
- Fundamental Influence: Divergent central bank policies between the ECB and BoJ, alongside USD weakness, are key drivers.
Technical Analysis
4-Hour Chart Overview
The attached 4-hour chart highlights a series of lower highs and lower lows, characteristic of a bearish trend. However, recent price action suggests a possible shift. The pair has rebounded from support near 159.00, a critical level that coincides with the lower boundary of the current range.
Resistance Levels:
- 161.00: The first major hurdle, where previous attempts to break above have failed. A close above this level could signal a breakout, with targets at 161.45 and 162.00.
- 162.45-162.50: Further bullish momentum may push prices towards this zone, where the next significant resistance lies.
Support Levels:
- 159.00: This psychological level has served as a strong support, preventing further declines. A break below this could invalidate the bullish setup, opening the door to 158.20 and eventually to 157.00.
1-Hour Chart Overview
The 1-hour chart provides a closer look at the consolidation pattern, with prices fluctuating between the established support at 159.00 and resistance at 161.00. The series of change of character (CHoCH) signals suggest that bulls are attempting to regain control, but bearish pressure remains evident, particularly near the 161.00 level.
Economic Data Impact
The current price action is underpinned by broader economic trends, notably the divergence in monetary policy between the European Central Bank (ECB) and the Bank of Japan (BoJ). While the ECB’s hawkish stance has provided support to the euro, the BoJ’s commitment to ultra-loose policy has kept the yen under pressure. Additionally, the weakening USD, driven by expectations of more aggressive easing by the Federal Reserve, further complicates the outlook for EUR/JPY.
Trading Recommendation
Given the mixed technical signals, traders should approach EUR/JPY with caution. A confirmed breakout above 161.00 could offer buying opportunities, targeting 162.00 and higher. Conversely, failure to hold above 159.00 could trigger a short-selling strategy, with targets near 158.20 and potentially lower.
Conclusion
The EUR/JPY pair is at a critical juncture, with the potential for a significant breakout on the horizon. Traders should watch key levels closely, as a move beyond the current range could set the stage for the next directional trend. Whether the pair breaks higher towards 162.00 or reverses below 159.00, the coming days will be crucial in determining its next major move.
