- The EUR/JPY remains close to the maximum of the year as tariff threats and political uncertainty weigh on the YEN.
- President Trump suggests that he is still open to commercial conversations with the EU while negotiations with Japan stagnates.
- The EUR/JPY maintains a bullish posture with the Momentum indicators remaining in overcompra territory.
The euro (EUR) was strengthened in front of the Japanese Yen (JPY) on Tuesday as investors rotated outside the Yen in the middle of a mixture of geopolitical and internal policy concerns.
At the time of writing, the EUR/JPY is quoted about 172.73, retreating slightly after reaching a new maximum of the year of 173.08 earlier in the day.
A key factor behind the movement are the renewed tariff threats of the US, with President Donald Trump pointing out higher reciprocal tariffs on imports from Japan and the European Union (EU), which will enter into force on August 1.
Although both economies can face winds against long term due to the greatest levies, which would increase the costs for US importers and weigh on the export -dependent sectors, the market reaction has been more negative for the YEN.
On Monday, President Trump indicated that he is still open to dialogue with the EU, but negotiations with Japan seem to have stagnated, increasing the risk premium on Japanese assets and further decreasing JPY’s demand.
At the same time, political uncertainty before the national elections of Japan on July 20 is cloudying the policy perspectives. The opposition parties are expected to advocate a more aggressive fiscal expense and a continuation of monetary flexibility, which could limit the capacity of the Bank of Japan to normalize short -term interest rates. This has weakened market confidence in Yen and has further inclined the momentum in favor of the euro.
Together, the increase in global yields, political uncertainty in Japan and the firm feeling in the Eurozone are supporting a continuous promotion in the Eur/JPy, although the torque now faces short -term resistance just below 173.00.
EUR/JPY maintains a bullish posture with Momentum indicators remaining in overcompra territory
In the daily chart, the price action of the Eur/JPY remains well supported above the simple mobile average (SMA) of 20 days in 169.97 and the 50 -day SMA in 166.42, reinforcing the underlying bullish trend.
The pair recently bounced from the Fibonacci recoil level of 78.6% of the long-term fall of July-August of 2024 in 170.93, which now acts as immediate support.
A sustained rupture above the maximum intradic in 173.08 would confirm an upward break, potentially pointing to the maximum of July 2024 of 175.43.
EUR/JPY DAILY GRAPH
However, the momentum seems to be stretched, with the relative force index (RSI) rising to 74, suggesting overcompra conditions that could lead to consolidation or a mild setback before the next leg on the rise.
Downwards, a break below 170.93 would indicate a weakening of the bullish momentum and could trigger a corrective setback. Below that, the following critical support is found in 61.8% setback around 167.40, which is aligned with previous consolidation areas and the SMA of 50 days ascending.
A movement below this region would suggest a broader change in feeling and could expose the 165.00 zone.
Japanese – frequent questions
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
