EUR/JPY Price Analysis: The first upside target emerges above 172.50
|- EUR/JPY drifts lower around 172.45 in Wednesday’s Asian session.
- The cross maintains the negative stance below the 100-period EMA on the 4-hour chart, with bearish RSI indicators.
- The first upside barrier will emerge at 172.75; the initial support level is located at 171.82.
The EUR/JPY cross weakens near 172.45 on Wednesday during the early European session. The cross edges lower as traders turn cautious ahead of the release of the Eurozone Harmonized Index of Consumer Prices (HICP) for June. The attention will shift to the European Central Bank (ECB) interest rate decision on Thursday, with no change in rates expected.
According to the 4-hour chart, the bearish outlook of EUR/JPY remains intact as the cross holds below the key 100-period Exponential Moving Averages (EMA). The cross could resume its upside if it can break above the 100-period EMA at 172.75. Meanwhile, the Relative Strength Index (RSI) stands in the bearish zone around 42.15, suggesting that the path of least resistance is to the downside.
The first upside barrier for the cross will emerge at 172.75, the 100-period EMA. Further north, the next hurdle is seen at 173.21, the upper boundary of the Bollinger Band. Extended gains will see a rally to 173.80, a low of July 4.
On the downside, the initial support level for the cross is located at 171.82, the lower limit of the Bollinger Band. The additional downside filter to watch is 170.85, a low of June 26. The crucial contention level will emerge at the 170.00 psychological level.
EUR/JPY 4-hour chart
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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