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EUR/JPY. Analysis and Forecast

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At the time of publication on Monday, the EUR/JPY pair is trading near 184.45, showing a daily gain of 0.45%, driven by a combination of positive signals for the euro and weakness in the Japanese yen.

The Sentix Investor Confidence Index for the eurozone improved in January to -1.8 from -6.2 in December, indicating a recovery in optimism regarding the region's economic outlook. This jump highlights a revival of positive sentiment, although its direct impact on the euro exchange rate remains moderate.

The Japanese yen is facing additional pressure amid news that Prime Minister Sanae Takaichi may dissolve the House of Representatives as early as the end of January, followed by snap elections in February. According to Kyodo News and Yomiuri, this prospect came as a surprise to markets and heightens concerns about a new wave of political instability in Japan, which traditionally weighs on the yen due to its heightened sensitivity to such risks.

Uncertainty surrounding monetary policy also persists. Bank of Japan Governor Kazuo Ueda confirmed readiness to further raise interest rates if inflation-related economic indicators align with forecasts. However, the lack of clarity regarding the timing of such a move limits any strengthening of the yen.

As a result, the current balance of fundamental forces continues to favor further growth in the EUR/JPY pair, as yen weakness significantly outweighs the absence of strong growth catalysts for the euro. Today, the euro is showing the greatest strength specifically against the Japanese yen among the major currency assets.

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From a technical perspective, support for the pair is located at the convergence of three moving averages around the 183.50 level, with the round 183.00 level below. The pair has encountered resistance at 184.45; above this level, it could move toward the December high at 184.95. Oscillators on the daily chart are positive, suggesting that the path of least resistance for EUR/JPY remains to the upside.

The material has been provided by InstaForex Company - www.instaforex.com
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