EUR/JPY Price Forecast: The cross keeps bullish vibe above 163.00 ahead of BoJ rate decision
- EUR/JPY extends upside to around 163.05 in Thursday’s early European session.
- The positive outlook of the cross prevails above the 100-period EMA with a bullish RSI indicator.
- The immediate resistance level emerges at 163.55; the first downside target to watch is 162.32.
The EUR/JPY cross extends the rally to near 163.05 during the early European trading hours on Thursday. The uptick of the cross is bolstered by the risk-on mood in the financial markets. Investors will closely monitor the Bank of Japan (BoJ) interest rate decision on Friday for fresh catalysts.
Traders have priced in a nearly 90% possibility that the Japanese central bank will raise interest rates from 0.25% to 0.50% at the end of the January 23-24 meeting, which would be the highest since the 2008 global financial crisis.
Technically, EUR/JPY keeps the bullish vibe on the 4-hour chart as the cross is well-supported above the key 100-period Exponential Moving Average (EMA). The upward momentum is supported by the Relative Strength Index (RSI), which stands above the midline near 58.05, indicating that the further upside looks favorable.
The first upside barrier for EUR/JPY emerges near 163.55, the upper boundary of the Bollinger Band. The next potential resistance level is seen at the 164.00 psychological level. Further north, the next hurdle to watch is 164.55, the high of January 5.
On the flip side, the initial support level for the cross is located at 162.32, the high of January 20. Any follow-through selling below the mentioned level could see a drop to 161.87, the 100-period EMA. The next contention level is seen at 160.96, the low of January 21.
EUR/JPY 4-hour chart
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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