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Analysis

EURJPY technical analysis | EURJPY bull trend is slowing down?

BY Janne Muta

|September 4, 2023

The EURJPY technical analysis shows the currency pair in a long term uptrend but losing momentum over the last few days. While the pair has risen over 26% since March 2022, recent technical indicators like the Stochastics Oscillator suggest momentum loss.

Key support and resistance levels are identified, with the 157.05 and 159.76 levels being pivotal for near-term market direction. On the fundamental side, both the Eurozone and Japan face economic challenges. Germany's manufacturing and services sectors are contracting, raising questions about the ECB's next move.

Meanwhile, Japan's economy shows resilience in trade but vulnerability in private consumption and manufacturing. The BoJ maintains an accommodative policy but faces high inflation. Both fundamental and technical analyses are crucial for navigating EURJPY's complex landscape. The next key risk events for this market is the ECB President Lagarde Speech today.

Read the full EURJPY technical analysis report below.

EURJPY technical analysis

EURJPY technical analysis weekly chart

Weekly EURJPY technical analysis

EURJPY has been trading higher since the March 2022 low. Over this period the market has risen over 26%. At the time of writing this the weekly candles show some signs of momentum loss. This shows in the Stochastics Oscillator also as it has created a lower high.

By drawing a trend channel on the chart, we can see that EURJPY is trading near the upper end of the channel. Therefore, it’s not surprising the market is actually showing some early signs of weakness.

EURJPY technical analysis suggests that if the momentum loss continues and the market takes out the last week’s low (157.05) we might see EURJPY retracing probably back to the SMA (20) 154.30. Note that this low roughly coincides with the previous week’s low (156.86) suggesting buyers are willing to defend this area.

The nearest key support level in the weekly chart (below the last week’s low) is at 151.40. This level coincides with a market structure level (a penetrated resistance level) and with the 23.6% Fibonacci retracement level. This adds to the significance of the level.

The next key resistance level for EURJPY is the last week’s high at 159.76. If the market can push beyond this level and maintain the new ground above it, we might see the market trading up to 162.50. The next major weekly resistance level is at 167.00.

EURJPY technical analysis daily chart

Daily EURJPY technical analysis

The daily chart shows a higher swing low at 156.86. If the market rallies higher today it will create yet another daily timeframe higher swing low, this time at 157.05. Note that this level coincides with SMA (50).

And the 23.6% Fibonacci retracement level isn’t far from the level either (at 157.12) when measured from the May 31st 2023 low to the latest high. So effectively EURJPY is trading in a sideways range inside a longer-term bull trend.

This could be a consolidation phase that if/when successfully resolved to the upside leads to another leg in the rally. However, while we are dealing with a bullish (uptrend) environment it’s obviously possible that the market could first dip lower before it potentially is ready to continue the rally.

For the bullish scenario to be the one more likely to occur we’d need to see the market rallying decisively above Friday’s high (157.96). This could open the way to the last week’s high at 159.76. The bearish scenario would be more probable if the market broke below the 156.86 - 157.05 support area.

EURJPY technical analysis 4h chart

The 4h EURJPY technical analysis

After moving below the oversold level, the Stochastics Oscillator has given a buy signal as the market has rallied higher. Therefore, as per this oscillator the market is bullish in this timeframe. However, note that the market has reached the 50 period SMA right above the minor resistance level at 157.96.

One of the basic tenets of the market is that the trend is your friend. In other words, look for momentum in the market. With this EURJPY technical analysis it means that the market needs to be able to show more force (momentum) in order to keep on pushing higher. Otherwise, the indication from the Stochastics oscillator is not valid.

It’s always the price action itself that validates the indications from technical indicators. If the market can keep on pushing higher, look for a move to 158.72 and then possibly to 159.60 on extension.

Client sentiment graph

Client sentiment analysis

TIOmarkets clients very bearish on the EURJPY market with only 6% of the client base favouring the long side and 43% the long side. Combine this information to the EURJPY technical analysis above to get a wider perspective on the market dynamics at play.

It’s good to remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

Currency Strength graph

EUR and JPY currency strength analysis

As it is Monday there hasn't been substantial moves relative to the opening values of the FX markets yet. EUR and JPY are both losing a little against the commodity currencies AUD and NZD with the JPY being the weakest.

EUR fundamental analysis

In recent data releases, both the manufacturing and services sectors in Germany have recorded PMI values below 50, signifying contractionary trends in economic activity. Specifically, the manufacturing sector reported its second-lowest PMI reading since May 2020. Meanwhile, the services sector also experienced a contraction, marking the first such occurrence in eight months.

The contraction in key sectors has had a ripple effect on financial markets, contributing to a climate of uncertainty. This is further exacerbated by rising interest rates and inflationary pressures, both of which have implications for household and corporate budgets.

Moreover, these economic indicators have influenced the performance of German bonds and the EUR. Given the complexities in both the Eurozone and Japan, EURJPY technical analysis can offer a more granular look at market behaviour in the short term.

Sectoral Performance

Much like Germany, the Eurozone at large is experiencing a slowdown in both manufacturing and services sectors. Although specific PMI data for the Eurozone is not covered in this report, multiple sources confirm a contractionary trend similar to Germany's, thereby affecting the overall economic health of the region.

Monetary Policy and the Euro

The European Central Bank (ECB) has been monitoring these developments closely and is expected to review its monetary policy to adapt to the changing economic landscape. Subdued economic activity, combined with inflationary pressures, presents a complex scenario for policymakers.

Conclusion

Recent economic data reveal contractionary trends in Germany's manufacturing and services sectors, which have also affected financial markets and bond performance. Similar contractions are observed across the Eurozone.

The European Central Bank (ECB) is in a policy quandary, as indicated by the minutes of its latest meeting. While a September rate hike was initially on the table, reconsideration is underway due to the potential efficacy of past hikes in curbing inflation.

Policymakers face the dual challenge of controlling inflation and fostering economic growth. In this precarious economic climate, caution is advised for both policymakers and investors.

In summary, EURJPY technical analysis serves as an indispensable tool for traders looking to navigate the frequent shifts in market dynamics in both EUR and JPY currencies.

JPY fundamental analysis

The Japanese economy is marked by both resilience and vulnerability. On one hand, the economy has shown notable vigour, evidenced by a 1.5% quarter-on-quarter growth in Q2 2023, substantially surpassing market expectations.

This positive trend is accentuated by a 6.0% annualised growth in the same period, the third consecutive quarter of yearly advancement. The buoyancy is largely attributed to a strong contribution from net trade, with exports rebounding by 3.2% and imports declining for the third consecutive quarter.

However, this optimism is counterbalanced by several challenges. Private consumption, a crucial component accounting for more than half of the economy, has retracted due to cost pressures.

Similarly, the manufacturing sector exhibits tepid growth, highlighted by a modest 1.6% gain in core machinery orders, which are a leading indicator of future capital investment. Despite advances in the non-manufacturing sector, these aspects suggest a cautious outlook for sustained economic expansion.

BOJ monetary policy

Against this backdrop, the Bank of Japan's (BoJ) monetary policy remains cautiously accommodative. The BoJ has maintained its key short-term interest rate at -0.1% and 10-year bond yields around 0%, with added flexibility in its yield curve control policy.

The bank's approach indicates a commitment to sustaining monetary stimulus while allowing for some room to manoeuvre. The BoJ projects a moderate economic recovery, mainly driven by pent-up demand, but notes potential deceleration in inflation due to waning effects of past rises in import prices.

While the BOJ’s current stance impacts the overall market sentiment EURJPY, it’s the EURJPY technical analysis that can help to pinpoint trading opportunities.

The bank continues to emphasise that it will expand the monetary base until inflation exceeds 2% and remains stably above this target. However, the inflation rate as of July 2023 stands at 3.3%, notably higher than market forecasts, raising questions about the efficacy and future trajectory of BoJ’s monetary policy.

Conclusion

In summary, while the Japanese economy demonstrates elements of robustness, particularly in trade balances and certain sectors, it is not devoid of vulnerabilities, especially in private consumption and capital investment.

The BoJ's policy appears to be a calibrated response to these signals but faces challenges with slower than optimal growth and inflation that is substantially above the central bank’s target rate of 2%.

It is good to remember though that while a broader understanding of the economic landscape through fundamentals is useful, EURJPY technical analysis can capture market sentiment in such a way that the economic data can not.

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Read more analysis on EUR and JPY!

The next main risk events

  • EUR - ECB President Lagarde Speaks
  • CNY - Caixin Services PMI
  • AUD - Cash Rate
  • AUD - RBA Rate Statement
  • AUD - GDP
  • GBP - Monetary Policy Report Hearings
  • CAD - BOC Rate Statement
  • CAD - Overnight Rate
  • USD - ISM Services PMI
  • AUD - Trade Balance
  • AUD - RBA Gov Lowe Speaks
  • CHF - Foreign Currency Reserves
  • USD - Unemployment Claims
  • CAD - Ivey PMI
  • USD - FOMC Member Harker Speaks
  • CAD - BOC Gov Macklem Speaks
  • CAD - Employment Change
  • CAD - Unemployment Rate
  • CNY - CPI
  • CNY - PPI

For more information and details see the TIOmarkets economic calendar.


While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

DISCLAIMER: Tio Markets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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