EUR/JPY Extends Decline as Japan Tightening Expectations Build

Summary:

EUR/JPY weakens toward 176.60 as BoJ tightening expectations strengthen the Yen. German inflation accelerates, while French political instability and elevated energy costs weigh on the Euro.

Sell EURJPY

End Time

CLOSED

176.600

ENTRY

173.500

TGT

178.000

175.618 -0.185 -0.11%

810

Points

Profit

173.500

TGT

175.790

CLOSING

176.600

ENTRY

178.000

EUR/JPY extended its decline on Tuesday, slipping 0.21% to around 176.60 as expectations of further Bank of Japan (BoJ) tightening continued to support the Japanese Yen. Meanwhile, the Euro remained under pressure from political instability in France and mounting concerns over the Eurozone's inflation outlook.

Germany's latest inflation figures highlighted the challenges facing European policymakers. September's Harmonized Index of Consumer Prices (HICP) rose 3.3% annually, accelerating from 2.9% in August and marking its highest reading since December 2023. Monthly inflation also increased to 0.6% from 0.2%, largely reflecting higher energy costs.

Although Brent crude has retreated from recent highs above $105, prices remain above $100 per barrel, adding to inflationary pressures across Europe's energy-dependent economies. The combination of rising consumer prices and weakening economic momentum raises concerns about stagflation, complicating the European Central Bank's efforts to balance inflation control with economic stability.

Political developments in France are adding another layer of uncertainty. Rising government borrowing costs, fiscal disagreements and growing public protests have weakened investor confidence in the Euro, limiting the currency's ability to benefit from expectations of restrictive ECB policy.

Meanwhile, the Japanese Yen continues to draw support from speculation that the BoJ will raise interest rates further. Japan's Producer Price Index increased 6.8% annually in September, indicating that underlying price pressures remain substantial despite moderating from August. Expectations of additional monetary tightening, alongside the possibility of currency intervention, have strengthened demand for the Yen.

The outlook for EUR/JPY remains tilted to the downside, with Japan's increasingly restrictive monetary policy expectations providing a stronger immediate catalyst than Europe's elevated inflation. While the ECB's inflation concerns could offer occasional support to the Euro, political uncertainty and persistent demand for the Yen may continue to restrict meaningful recoveries.

Technical Analysis

EUR/JPY continues to display a weakening technical structure on the four-hour chart, with the currency cross trading around 176.64 after a prolonged decline from the 181.50 region. The market has consistently formed lower highs and lower lows, reflecting sustained selling pressure as attempts to recover have repeatedly encountered resistance. Although prices have entered a period of consolidation, the broader bearish trend remains intact, suggesting that the current stabilization could precede another downward move.

The latest price action shows EUR/JPY struggling to establish a meaningful recovery above 177.00, while the former support region around 177.95–178.20 has turned into a significant resistance barrier. Previous rebounds toward this area have attracted renewed selling interest, reinforcing its importance in maintaining the bearish structure. A sustained move above this zone would be needed to challenge the immediate negative outlook, potentially opening the door toward 179.70–179.90.

Attention has now shifted to the 176.30–176.50 support zone, which has repeatedly provided temporary relief from selling pressure. However, the persistence of lower highs suggests that buyers are gradually losing their ability to defend this region. A convincing four-hour close below 176.30 would strengthen the case for continued depreciation, initially exposing 175.70 before extending toward the 174.80 area.

The chart's projected trajectory also suggests that a brief corrective rebound could develop following an initial breakdown, potentially allowing prices to retest broken support before sellers regain control. Should this scenario unfold, the next significant downside objective would emerge around 173.40–173.50, consistent with the continuation of the prevailing bearish trend.

On the upside, any recovery toward 177.00–177.50 would likely remain corrective unless buyers manage to reclaim the 178.20 resistance region. Until then, rallies may continue to encounter selling pressure, particularly as the market remains positioned beneath several previously established support levels.

Overall, EUR/JPY appears increasingly vulnerable to another bearish extension, with the consolidation near 176.60 offering little evidence of a sustained trend reversal. A confirmed break below 176.30 would reinforce the bearish outlook, potentially paving the way for a deeper decline toward 173.50.

TRADE RECOMMENDATION

SELL EUR/JPY

ENTRY PRICE: 176.60

STOP LOSS: 178.00

TAKE PROFIT: 173.50

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

3150

Win Rate

63.78%

P/L Ratio

0.73

Focus on

XAUUSD, EURUSD, GBPUSD

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