The EUR/JPY pair begins the week on a cautious note, trading below the 162.00 mark during the Asian session. Despite early gains supported by a weaker Japanese Yen, bearish fundamentals and technical signals suggest a downward bias for the cross.
Fundamental Overview
Japanese Yen (JPY) Dynamics
Domestic Political Uncertainty:
Concerns over political instability in Japan may restrain the Bank of Japan (BoJ) from implementing further rate hikes, reducing the JPY’s appeal.
Risk-On Sentiment:
A global risk-on environment limits demand for the safe-haven Yen, providing mild support for EUR/JPY.
Intervention Concerns:
Persistent fears of BoJ or government intervention in the currency market, coupled with declining U.S. Treasury yields, help cushion the JPY from deeper losses.
Euro (EUR) Weakness
Eurozone Economic Concerns:
The Eurozone Composite PMI fell to a 10-month low in November, reflecting weak economic activity and elevating risks to the region’s growth outlook.
ECB Policy Expectations:
Soft data has fueled speculation of faster interest rate cuts from the European Central Bank (ECB), undermining the Euro.
Additional pressure stems from the potential adverse impact of President-elect Donald Trump’s proposed tariffs, which could further weigh on the Eurozone economy.
Technical Analysis
Key Levels:
Support:
161.00: A key psychological level; a sustained break below could open the door to further declines.
160.50: A lower support level aligned with prior swing lows.
Resistance:
162.00: Immediate resistance and a key psychological barrier.
162.60: Close to the 200-period SMA on the 4-hour chart, marking a significant technical hurdle.
Momentum Indicators:
Oscillators:
The RSI and MACD on daily/hourly charts remain in negative territory, reinforcing bearish momentum.
Moving Averages:
Repeated failures near the 200-period SMA on the 4-hour chart suggest a lack of bullish conviction.
Outlook and Strategy
Bearish Bias:
The bearish technical setup and unfavorable fundamentals favor sellers. A decisive break below 161.00 could accelerate declines toward 160.50 or lower.
Upside Risks:
On the upside, any move toward 162.60 or higher is likely to encounter selling pressure. Bulls would require a sustained breakout above the 200-period SMA to negate the bearish outlook.
Short-Term Focus:
Traders may consider selling on rallies near resistance levels, while monitoring key Eurozone and Japanese economic data for additional cues.
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