EUR/JPY rally persists, market watches for break above 170.00

• EUR/JPY approaches the significant 170.00 level, reaching a peak not seen since July 2024.
• Weak Japanese economic indicators and a consistent BoJ policy impact Yen negatively.
• Despite a decline in Eurozone economic sentiment, the Euro exhibits resilience.

The Euro (EUR) is gaining strength against the Japanese Yen (JPY) this Friday, with the EUR/JPY pair nearing highs last witnessed in July 2024. This uptrend is fueled by robust demand for the Euro and ongoing weakness in the Yen, amplified by differing monetary policies from the European Central Bank (ECB) and the Bank of Japan (BoJ).

Currently, EUR/JPY is trading just below the 170.00 mark, at approximately 169.70 during the American trading session. The pair has recently broken out from a tight trading range that persisted from Monday to Thursday, fluctuating between 168.20 and 169.00. The upward movement on Friday is driven by disappointing Japanese economic figures and sustained strength in the Euro, amidst a generally risk-on market environment and a weakening US Dollar (USD) after mixed American economic data and fresh political challenges to the Federal Reserve (Fed).

Recent economic data from Japan has contributed to the Yen’s decline. The Tokyo Consumer Price Index (CPI) for June showed a 3.1% year-over-year increase, a decrease from May’s 3.4% rise. Core Consumer Prices also increased by 3.1% year-over-year in June, down from a 3.6% increase in May and below the anticipated 3.3%. This represents the first slowdown in core inflation since February, although it remains above the Bank of Japan’s 2% target. Additionally, retail sales in May grew by 2.2%, a decrease from the revised 3.5% growth in April and below the expected 2.7%, indicating a weakening in consumer demand. The unemployment rate in Japan stayed steady at 2.5% for the third consecutive month, meeting forecasts but doing little to bolster the Yen.

In contrast, data from the Eurozone was mixed. The Euro Area consumer confidence indicator remained steady at -15.3 in June, consistent with May and matching preliminary estimates, indicating ongoing fragility in household sentiment. The economic sentiment indicator (ESI) dropped to 94.0 from 94.8 in May, falling short of the anticipated slight rise to 95.1. Despite these figures suggesting subdued confidence throughout the region, they have not significantly impacted the Euro’s upward trajectory on the day.

From a technical standpoint, EUR/JPY is navigating within a clearly defined ascending channel, with current levels nearing the channel’s upper boundary at about 169.75. The bullish trend is well-supported by a consistent pattern of higher highs and higher lows since early June. The 21-day Exponential Moving Average (EMA), now at 166.86, serves as dynamic support, reinforcing the bullish outlook. The Relative Strength Index (RSI) is in the overbought zone at 71.08, indicating strong momentum, although it also suggests the possibility of an impending pullback. Meanwhile, the Moving Average Convergence Divergence (MACD) is solidly in bullish territory, with increasing divergence on the signal line, further confirming the upward momentum. A firm daily close above the 170.00 level could pave the way for a push towards the July 2024 peak near 171.00, while any pullbacks might find initial support at 168.20, followed by the EMA at 166.86.