The EUR/JPY currency pair has entered the week with a slightly positive momentum; however, it faces challenges in sustaining any substantial gains as it struggles to surpass the 162.00 level during the Asian trading session. The overarching economic landscape indicates that the most likely direction for the pair is downward.
Heightened political uncertainty in Japan appears to be influencing expectations around the Bank of Japan’s (BoJ) interest rate strategy, leading many investors to believe that further rate hikes may not be forthcoming. This hesitance, combined with a risk-on market sentiment, is diminishing the demand for the traditionally safe Japanese Yen (JPY), thereby providing some support for the EUR/JPY cross. Nevertheless, concerns over potential government intervention and declining US Treasury yields are acting to limit the extent of JPY losses.
On the other hand, the Eurozone can be seen as increasingly fragile due to a surprising drop in the Composite PMI, which has reached its lowest level in ten months. The economic environment is further stressed by potential implications from ongoing geopolitical tensions and trade tariff threats, which have raised speculation regarding quicker interest rate reductions by the European Central Bank (ECB). Such developments have benefited EURO bears and reinforced a decline in the outlook for the EUR/JPY pair.
From a technical viewpoint, recent attempts to break through the 200-period Simple Moving Average (SMA) on the 4-hour chart have not been successful, thus leaning the scales in favor of bearish traders. Additionally, bearish indicators observed across daily and hourly charts imply that any upward movement might be temporary and could be perceived as an optimal selling opportunity. Investors are likely to look out for confirmations below the 161.00 level before making any decisions to capitalize on potential intraday declines.
