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Price Correction May Offer Bullish Reentry Opportunity in EURJPY
Central Bank
Economic
Summary:
EUR/JPY continues to trade within a well-defined ascending channel. Recently, the pair approached the upper boundary of the channel but faced downward pressure from that resistance area.
Buy
CLOSEDEURJPY
End Time
162.699
Entry Price
165.300
TP
161.440
SL
163.411 -0.458 -0.28%
113
Points
Profit
161.440
SL
162.812
CLOSING
162.699
Entry Price
165.300
TP
A number of European Central Bank (ECB) officials stated on Tuesday that the institution’s ongoing strategic review is expected to largely validate its previous monetary policy decisions, particularly its implementation of quantitative easing (QE), despite lingering criticism from some members of the policymaking community. They reiterated that the ECB will remain fully committed to taking “decisive action” in environments characterized by low inflation and subdued interest rates, even after the review process concludes.
Gabriel Makhlouf, a member of the ECB Governing Council and Governor of the Central Bank of Ireland, expressed concerns that rising economic uncertainty is putting downward pressure on investment across the eurozone. He pointed out that the latest batch of soft economic data reflects a marked decline in both business and consumer sentiment, underlining the fragile state of the region’s economic recovery.
Amid these concerns, however, there were some signs of optimism. Germany’s ZEW Economic Sentiment Index saw a dramatic rebound, jumping to 25.2 in May from -14 in April—far surpassing the market’s expectation of 11.9. Similarly, the broader Eurozone ZEW Index climbed to 11.6 from a previous -18.5 reading, signaling improved outlooks from financial market experts even in the face of ongoing macroeconomic challenges.
In other economic updates, Germany’s Harmonized Index of Consumer Prices (HICP) held steady at 2.2% year-over-year in April. Although the figure was largely in line with forecasts, it served to reinforce the broader disinflationary trend that continues to weigh on the euro area. The data further fueled market expectations that the ECB may opt for a rate cut as soon as June. Reinforcing this sentiment, ECB officials, including Isabel Schnabel, emphasized the importance of maintaining the current accommodative stance in light of persistent global uncertainties. While these developments are not strong enough to spark a major rally, the combination of soft inflation data and dovish rhetoric provided modest support to the euro after its recent downward stretch.
Meanwhile, across the globe, Bank of Japan (BoJ) Deputy Governor Shinichi Uchida reaffirmed on Tuesday that the central bank remains open to further policy tightening, even amid ongoing global uncertainties such as U.S. trade policy shifts. Addressing lawmakers, Uchida acknowledged that Japan’s core inflation and long-term inflation expectations may stagnate temporarily, but he highlighted continued upward pressure from an “exceptionally tight” labor market. He emphasized that rising wages and shipping costs are likely to be passed on to consumers, reinforcing the potential for a sustained inflationary trend.
Japan's Producer Price Index (PPI) for April also supported this narrative, coming in as expected with a 4.0% year-over-year increase. The solid inflation data, combined with Uchida’s hawkish tone, strengthened market expectations that the BoJ could proceed with another interest rate hike in the near term.
Technical Analysis
EUR/JPY continues to trade within a well-defined ascending channel. Recently, the pair approached the upper boundary of the channel but faced downward pressure from that resistance area. Price action has since shifted lower, and attention now turns to the lower end of the channel, where the 100- and 200-period moving averages are located at 163.03 and 162.33, respectively. These levels have historically provided strong support, fueling upward moves in previous sessions. A return to this zone may present a new bullish opportunity if the trend structure holds.
The Relative Strength Index (RSI) currently stands at 48 and is declining rapidly. This could signal that bearish momentum may begin to fade as the indicator approaches oversold territory. If the price tests and holds above the 162.62 level—a key support near the ascending trendline—it may trigger a fresh bullish leg within the broader uptrend. On the other hand, a firm break below this level and the lower channel boundary could open the door for a deeper correction, potentially accelerating downside pressure.
Trading Recommendations
Trading direction: Buy
Entry price: 162.70
Target price: 165.30
Stop loss: 161.44
Validity: May 23, 2025 15:00:00
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