EUR/JPY retreats after multi-year high as Eurozone resilience contrasts with JPY weakness

EUR/JPY trades below 182.00 on Tuesday after setting a new multi-year high at 182.15 earlier in the day, still posting a 0.25% gain at the time of writing. The move reflects a combination of support for the Euro (EUR) and weakness in the Japanese Yen (JPY) within a contrasting macroeconomic backdrop between the Eurozone and Japan.

The Euro benefits from a series of stronger-than-expected indicators. The Eurozone Sentix index improved markedly in December, with investor confidence rising to -6.2 from -7.4 in November, while the Expectations component strengthened to 4.8. At the same time, Germany recorded a rebound in Industrial Production of 1.8% in October, well above the consensus that had anticipated a contraction. These figures reinforce the view that the European economy is showing more resilience than previously thought.

Signals from the European Central Bank (ECB) also support the single currency. Executive Board member Isabel Schnabel said she felt comfortable with market expectations pointing to the next move being a rate hike, while Martins Kazaks noted that such a decision should not occur as early as December. This tone strengthens the perception that the ECB has ended its easing cycle, boosting the Euro against weaker currencies.

In contrast, the Japanese Yen remains under pressure. Japan released a revised Gross Domestic Product (GDP) figure for the third quarter at -0.6%, showing a deeper contraction than expected. This complicates the Bank of Japan’s (BoJ) normalization path. BoJ Governor Kazuo Ueda confirmed that the institution is moving slowly toward normalization, highlighting that inflationary pressures persist, yet investors remain cautious about the actual timing of policy tightening.

The situation has been worsened by a powerful 7.6-magnitude earthquake in the country’s northeast, leading to evacuation orders and tsunami warnings. The event increases concerns over short-term economic prospects, adding to Japanese Yen weakness.

EUR/JPY Technical Analysis

In the 4-hour chart, EUR/JPY trades at 181.71, up for the day by 24 pips. The 100-period Simple Moving Average (SMA) advances and sits near 180.77, with price holding above it. This keeps the near-term tone biased to the upside. The Relative Strength Index (RSI) stands at 64, signaling firm bullish momentum without overbought conditions. A descending trend line from 182.01 was broken at 181.24, enhancing the bullish impetus.

The rising trend line from 179.78 underpins the move, offering support near 180.18. Immediate resistance aligns at 182.01, while support is seen at 178.98. A clear break above resistance could open the way to fresh highs, whereas failure to hold trend-line support would expose the lower horizontal level.

(The technical analysis of this story was written with the help of an AI tool)