EUR/JPY. Analysis and Forecast

[Ben Graham]

The EUR/JPY exchange rate continues to recover after a slight decline.

In the eurozone, the preliminary inflation indicator (HICP) for November is expected to rise to 2.1% year-over-year, while core inflation is forecast to increase to 2.5% from 2.4%. The inflation data published on Monday for the largest eurozone economies — France, Spain, and Italy — have not yet given cause for concern regarding a significant increase in prices. However, the higher-than-expected figures in Germany came as a surprise, helping maintain the ECB's dovish stance and supporting the euro, as well as the EUR/JPY pair.

At the same time, the yen is weakening, as positive risk sentiment reduces demand for traditional safe-haven assets. This factor additionally supports EUR/JPY, assisting its recovery. But a significant weakening of the yen should not be expected: markets increasingly believe that the Bank of Japan will continue on the path toward policy normalization. The hawkish remarks made on Monday by Bank of Japan Governor Kazuo Ueda largely confirm the central bank's intention to adhere to its current guidelines, noting an increased likelihood of achieving its economic and price forecasts.

Additionally, Japan's Finance Minister Satsuki Katayama emphasized on Sunday that recent market fluctuations and the rapid depreciation of the yen are not driven by fundamental factors. He added that the authorities are prepared to respond to such situations. These comments sparked speculation that Japanese officials may intervene to stop further weakening of the national currency. Such a step could limit bearish activity on the yen and restrain any significant intraday rallies in EUR/JPY.

From a technical standpoint, the oscillators on the daily chart are positive, confirming the constructive outlook. The pair is targeting the November high near 182.00, with interim resistance around 181.50. Immediate support is the 140-day EMA near the key psychological level of 180.00, followed by the 20-day SMA. A break below these levels would signal weakening bullish momentum.

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