Forex market update: EURJPY rate forecast, bullish sentiment persists

In forex market, the EUR/JPY cross dipped to around 165.75 in the early European trading session on Wednesday. This decline is partly driven by expectations that the European Central Bank (ECB) may lower its Deposit Facility Rate again this year, leading to some selling pressure on the Euro (EUR).

Key points:

1. EUR/JPY drifts lower to around 165.75 in Wednesday’s early European session.
2. The constructive outlook of the cross remains intact, with the bullish RSI indicator.
3. The immediate resistance level emerges at the 166.00-166.10 region; the first support level is seen at 165.16.

EUR/JPY Outlook: Bullish Momentum Persists Above Key Levels

The positive outlook for EUR/JPY remains intact as the cross stays above the key 100-period Exponential Moving Average (EMA). Supporting this bullish sentiment, the Relative Strength Index (RSI) is positioned above the midline at around 62.20, indicating strength among buyers in the near term.

The first significant resistance for the cross appears in the 166.00-166.10 range, which aligns with the high from October 29 and a key psychological level. A decisive move above this zone could trigger a rally towards 166.55, the upper boundary of the Bollinger Band. Further resistance is found at 167.95, the high from July 30.

On the downside, initial support is identified at 165.16, the low from October 29. Should selling pressure push the price below this level, a decline to 164.32, the low from October 26, may follow. Additionally, keep an eye on 164.06, the lower limit of the Bollinger Band, as another potential support level.

The EURJPY prepares for new rise

The EUR/JPY pair has confirmed its bullish bias by closing above the additional support level of 164.30. This strong position, combined with key indicators reflecting positive momentum, has enabled the pair to consolidate around the 165.80 mark.

As we look ahead, continued upward pressure could propel the pair toward the 38.2% Fibonacci retracement level at 166.90, an important threshold that may help define the next medium-term trend. Should the bullish momentum sustain, breaking above this level could pave the way for further gains, possibly reaching higher resistance levels.

On the downside, maintaining support above 164.30 is crucial, as any significant drop below this could indicate a shift in sentiment. Traders should closely monitor this dynamic to assess potential price movements. Overall, the expected trading range for today is between 164.80 and 166.50, presenting opportunities for both short-term and long-term strategies.

The BoJ seems incapable of hiking interest rates further

Market speculation that the Bank of Japan (BoJ) will maintain interest rates at their current levels through the end of the year has intensified following the recent Japanese elections, where the ruling party did not secure a majority. This outcome has introduced uncertainty regarding the stability of economic growth.

Meanwhile, investors await the BoJ’s interest rate decision on Thursday in which the central bank is expected to leave its key borrowing rates unchanged at 0.25%. Therefore, investors will keenly focus on the interest rate guidance.

One of the Bank of Japan's key mandates is currency control, making its actions critical for the Yen. The BoJ has occasionally intervened directly in currency markets, typically to lower the Yen's value, but it exercises caution due to the political implications with its major trading partners. From 2013 to 2024, the BoJ's ultra-loose monetary policy led to a depreciation of the Yen against its main currency counterparts, driven by increasing divergence in policies between the Bank of Japan and other central banks. However, the recent gradual unwinding of this ultra-loose approach has provided some support for the Yen.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.