The EUR/JPY currency pair demonstrated a renewed upward trajectory in early European trading on Friday, climbing from an initial range of 168.65-168.60 to trade within a bullish bid range of 169.25-169.30, marking an increase of approximately 0.20% on the day. This positive movement appears poised for further gains, underpinned by several key factors influencing both the Euro and the Japanese Yen. The Euro is currently benefiting from a prevailing selling bias against the U.S. dollar, which, as discussed in previous analyses, tends to strengthen other major currencies against the greenback. This dynamic, driven by expectations of a more dovish Federal Reserve policy, indirectly supports the Euro against the Yen. Meanwhile, the Japanese Yen faced downward pressure during Fridays trading session following the release of weaker-than-expected Consumer Price Index (CPI) data from Tokyo. The headline Tokyo CPI for June eased to 3.1% year-over-year from 3.4% in May, missing market expectations. Furthermore, another report indicated that Japanese retail sales growth in May fell to its slowest pace since February, increasing by 2.2% year-on-year, below the anticipated 2.7% and the prior months 3.5%. These subdued inflation and consumption figures reinforce expectations that the Bank of Japan (BoJ) may refrain from raising interest rates throughout 2025. Indeed, the BoJ kept its policy rate unchanged at 0.5% in June, and the prevailing market consensus, given the current economic data, is that any further rate hikes are unlikely until late 2025 or early 2026. Such a dovish outlook for the BoJ weakens the Yen, as lower interest rates reduce the attractiveness of holding the currency.
Compounding these factors is a generally positive risk sentiment pervading global markets. As investors become more comfortable with global economic prospects and geopolitical stability, the demand for safe-haven assets like the Japanese Yen diminishes. This confluence of a weaker Yen due to domestic economic data and a resilient Euro benefiting from broader dollar weakness, coupled with improved risk sentiment, solidifies the bullish outlook for the EUR/JPY pair. However, from a technical standpoint, caution is advised for traders contemplating new bullish positions. The Relative Strength Index (RSI) on the daily chart is hovering near overbought territory, suggesting that the pair might be due for a correction. Therefore, it may be prudent to await an extension of the current multi-day consolidation period before initiating fresh long bets. Despite this, the market sentiment appears to favor further upside for EUR/JPY, implying that any corrective decline would likely find robust support. This support is anticipated near the weekly trend line, specifically around the 168.70-168.65 area. A decisive breach below this level, however, could trigger significant technical selling, potentially accelerating a decline towards the psychological 168.00 mark, followed by the 167.60-167.55 area, and ultimately testing the lower boundary of the weekly range at 167.00-166.90. This latter zone is crucial, as a conclusive break below it would invalidate the current positive outlook and shift the short-term trend in favor of bearish traders. On the upside, the 169.70 level, which represents the nearly one-year high recorded on Monday, is expected to act as immediate resistance. Subsequent buying pressure could lead to a breach of the psychological barrier of 170.00, which would serve as a new bullish catalyst, potentially propelling the EUR/JPY pair towards the medium-term resistance level at 170.40 and ultimately reclaiming the 171.00 level for the first time since June 2024.
