EUR/JPY Price Forecast: Bullish outlook remains in place near 172.00, overbought RSI condition eyed

EUR/JPY declines to around 172.05 in Monday’s early European session, down 0.15% on the day.
The positive bias of the cross prevails above the 100-day EMA, but the overbought RSI condition might cap its upside.
The immediate resistance level emerges in the 172.95-173.00 zone; the first downside target to watch is 170.81.

Lallalit Srijandorn FXStreet

The EUR/JPY cross loses ground to near 172.05 during the early European session on Monday. The Euro (EUR) weakens against the Japanese Yen (JPY) after US President Donald Trump said on Saturday that the United States (US) will impose a 30% tariff on goods from the European Union (EU), starting on August 1.

Technically, the constructive outlook of EUR/JPY remains in place as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) stands above the midline near 70.80, indicating the overbought RSI condition. This suggests that further consolidation or temporary sell-off cannot be ruled out before positioning for any near-term EUR/JPY appreciation.

The first upside barrier for the cross emerges in the 172.95-173.00 zone, representing the upper boundary of the Bollinger Band and the psychological mark. Extended gains could see a rally to 174.52, the high of July 3, 2024. The additional upside filter to watch is 175.43, the high of July 11, 2024.

On the flip side, the initial support level for EUR/JPY is located at 170.81, the low of July 11. Sustained trading below the mentioned level could see a drop to 170.00, a round figure. The next downside target is seen at 169.04, the low of July 2.

EUR/JPY daily chart

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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