The EUR/JPY currency pair has been one of the most remarkable performers in foreign exchange markets this year, consistently breaking records and capturing investors' attention. However, recent technical indicators suggest this prolonged uptrend may be approaching an inflection point.
A Dance Between Weak Yen and Resilient Euro
The pair's exceptional performance stems from two primary factors: sustained Japanese yen weakness and relative euro strength.
Yen: The Underperformer
The Bank of Japan's persistent ultra-loose monetary policy has significantly weakened the yen. With other major central banks tightening policy, the widening interest rate differential has made the yen increasingly unattractive to investors seeking higher yields.
Euro: Defying Challenges
While facing inflation and energy crises, the European Central Bank's hawkish stance and the eurozone's economic resilience have provided support. The ECB's rate hikes have helped maintain the euro's value despite regional challenges.
Record-Breaking Ascent
The currency pair's ascent has been remarkable:
• October: Breached 176.00 psychological level
• November: Surpassed 180.00 milestone
• Mid-November: Entered consolidation between 180.00-182.00
• December 9: Resumed upward trajectory
• Last Friday: Reached all-time high of 183.158
Technical Warning Signs Emerge
Following its peak, EUR/JPY has shown consecutive daily declines, raising questions about trend sustainability. Key technical developments include:
• Breakdown below 100-hour moving average (182.39)
• Fall below 200-hour moving average (181.87)
• Drop below critical 181.827-182.00 support zone
• Breach of 38.2% Fibonacci retracement level
These technical breaches provide sellers with clearly defined risk parameters not previously available during the uptrend.
Central Bank Decisions Loom
Upcoming policy meetings from both the ECB and BOJ this week could significantly influence the pair's direction:
ECB Outlook
A maintained hawkish stance could limit downside, while any dovish signals might accelerate corrections.
BOJ Considerations
Continued loose policy would sustain yen weakness, but any unexpected policy adjustments could dramatically strengthen the Japanese currency.
As always in currency markets, while trend-following remains prudent, clearly defined risk parameters allow traders to navigate potential turning points with measured caution.