EUR/JPY extended its pullback during Wednesday's Asian trading session, with the exchange rate falling to around 184.30, marking a second consecutive day of weakness. The market is currently caught in a back-and-forth between heightened global risk aversion, expectations of Japanese intervention, and hawkish expectations from the European Central Bank, leading EUR/JPY into a phase of consolidation at elevated levels.
Recent tensions in the Middle East have led to a significant decline in global risk appetite. Statements regarding potential renewed military action against Iran have reignited market concerns about an escalation in the region. Concurrently, Iran has maintained a firm stance, stating that any military strike would be met with a response. Against this backdrop, market risk aversion has notably increased, with some capital flowing back into safe-haven currencies like the Japanese yen.
However, unlike traditional safe-haven cycles, the yen's overall rebound remains relatively limited. This is primarily due to the substantial interest rate differential that persists between Japan and Europe/the US. Particularly with US Treasury yields remaining elevated, carry trades continue to exert long-term pressure on the yen.
For the euro, a recent hawkish shift from the European Central Bank has become a key supporting factor. As rising international energy prices increase inflation risks in the eurozone, market bets on further ECB rate hikes have intensified. Most market participants currently expect the ECB to implement another 25-basis-point hike in June. Recent comments from Bundesbank President Nagel and other ECB officials have reinforced this hawkish signal, emphasizing that energy price increases could reignite eurozone inflation.
In the short term, however, EUR/JPY still faces some technical adjustment pressure. After approaching the historical high near 188, bullish momentum began to wane, leading the market into a phase of profit-taking at high levels.
From a daily chart perspective, EUR/JPY's overall structure remains medium-to-long-term bullish, but it has clearly entered a short-term correction phase. The pair is currently trading within a gradually converging descending wedge pattern. This pattern is typically characterized by "lower lows" and "lower highs," but as the trading range narrows, it often signals that bearish momentum is gradually dissipating.
Currently, EUR/JPY has broken below both the 9-day and 50-day Exponential Moving Averages (EMAs), indicating a shift in short-term market sentiment from the previous strong uptrend to a bearish consolidation phase. The 9-day EMA is near 184.71, and the 50-day EMA is in the 184.84 area. These levels have now become the most critical short-term resistance zones. The daily Stochastic RSI is currently around 44, showing overall weak market momentum but not yet in extreme oversold territory. This suggests that while bears still dominate, the downward momentum has begun to slow.
From a candlestick structure perspective, EUR/JPY has recently formed successively lower highs while support levels are gradually converging, indicating the market is entering a phase of directional decision. If the exchange rate can subsequently break above the upper boundary of the descending wedge and stabilize above 184.80, the technical picture could turn bullish again, with a potential retest of the historical high near 187.95. The 187.95 level, set on April 17, represents the most significant long-term resistance area. If the euro continues to be supported by ECB hike expectations and the yen weakens anew, EUR/JPY could still challenge this area.
On the downside, the 181.87 area is the first key support level, corresponding to the three-month low formed in mid-March. If market risk sentiment deteriorates further or the Japanese government intensifies its currency intervention efforts, EUR/JPY could probe lower towards the 180.81 area, which corresponds to the February low and serves as a crucial defensive zone for the current medium-term structure.
Overall, EUR/JPY is currently in a transitional phase between "short-term correction" and "medium-to-long-term bullish trend." The future direction of the pair will primarily depend on global risk sentiment, changes in the interest rate differential between Europe/the US and Japan, and whether expectations for Japanese government intervention intensify further.
The EUR/JPY trend has shifted from its previous unilateral rise to a phase of correction at high levels. While hawkish ECB expectations continue to support the euro, heightened global risk aversion and potential Japanese FX intervention are capping further upside for the pair. Technically, the descending wedge pattern suggests bearish momentum is waning, but the market has not yet achieved a decisive breakout. In the near term, the resistance near 184.80 and support around 181.80 will be critical levels determining the next directional move for EUR/JPY. Going forward, markets will need to closely monitor developments in the Middle East, the ECB's policy path, and official Japanese commentary on the currency, as these factors will collectively determine whether EUR/JPY can resume its upward trend.
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