- EUR/JPY drifts lower to around 165.75 in Wednesday’s early European session.
- The constructive outlook of the cross remains intact, with the bullish RSI indicator.
- The immediate resistance level emerges at the 166.00-166.10 region; the first support level is seen at 165.16.
The EUR/JPY cross weakens to near 165.75 during the early European trading session on Wednesday. The anticipation that the European Central Bank (ECB) would cut its Deposit Facility Rate again this year exerts some selling pressure on the Euro (EUR).
According to the 4-hour chart, the positive outlook of EUR/JPY prevails as the cross holds above the key 100-period Exponential Moving Average (EMA). Additionally, the upward momentum is supported by the Relative Strength Index (RSI), which stands above the midline near 62.20, supporting the buyers in the near term.
The first upside barrier for the cross emerges at the 166.00-166.10 zone, representing the high of October 29 and the psychological level. A decisive break above this level could see a rally to 166.55, the upper boundary of the Bollinger Band. The next resistance level is located at 167.95, the high of July 30.
On the downside, the initial support level for EUR/JPY is seen at 165.16, the low of October 29. Any follow-through selling below the mentioned level could see a drop to 164.32, the low of October 26. The additional downside filter to watch is 164.06, the lower limit of the Bollinger Band.
EUR/JPY 4-hour chart
Euro FAQs
The Euro is the currency for the 19 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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