The EUR/JPY cross trades around 177.30 during Friday’s early European session, remaining below the 177.50 psychological resistance level as deteriorating technical momentum and shifting monetary policy expectations reinforce a bearish near-term outlook.
The pair’s inability to establish a sustained recovery suggests that selling pressure remains dominant, particularly while spot trades beneath its key moving averages. Read the full article to learn more about this topic from Chilli Markets’ experts.
Market participants remain alert to potential Japanese yen intervention, which could trigger abrupt appreciation in the JPY and accelerate losses in EUR/JPY. Additionally, increasingly hawkish signals from the Bank of Japan (BoJ) are strengthening expectations of further monetary policy normalization, creating an additional headwind for the cross.
From a market-structure perspective, the inability to reclaim nearby resistance indicates limited bullish conviction. Unless EUR/JPY establishes a sustained move above 178.20, the probability of another test of lower technical support remains elevated.
BoJ Policy Normalization Strengthens the Yen Outlook
BoJ policy board member Junko Koeda has emphasized that policymakers should avoid excessive caution regarding further interest-rate increases, particularly given persistent upside inflation risks. She also highlighted the importance of adjusting the policy rate promptly while accounting for the estimated neutral interest-rate range.
These remarks reinforce the possibility of additional monetary tightening in Japan. Higher domestic yields could improve the relative attractiveness of yen-denominated assets, potentially supporting capital inflows and reducing the appeal of yen-funded carry trades.
For EUR/JPY, the key variable is the relative monetary policy divergence between the BoJ and the European Central Bank (ECB). If Japanese rates rise while euro-area borrowing costs stabilize, the narrowing interest-rate differential could encourage further yen appreciation. Delayed BoJ tightening or renewed demand for higher-yielding assets could limit the currency’s gains.
Japanese Capital Flows Present Mixed Yen Signals
Japanese financial flows reveal competing forces influencing the currency. MUFG reported foreign purchases of Japanese bonds totaling approximately JPY 3,091 billion, potentially indicating improving investor confidence in Japanese government bonds (JGBs) following three consecutive months of selling through August.
However, overseas equity investment by Japanese households continues to represent a structural headwind for the yen. Foreign equity purchases reached approximately JPY 1,360 billion during September, while the three-month cumulative total climbed to a record JPY 3,949 billion.
MUFG estimates that annualizing this three-month investment pace implies potential outflows approaching JPY 16 trillion, equivalent to approximately USD 100 billion. These flows, partly associated with the expanded NISA tax-advantaged investment framework, increase structural demand for foreign assets and currencies.
Technical Analysis: 175.65 Support Defines the Next Downside Threshold
The daily technical structure remains bearish, with EUR/JPY trading below the 20-day Bollinger Band simple moving average near 178.20 and substantially beneath the 100-day SMA around 182.90.
This configuration indicates that the prevailing price trend remains under pressure, with intermediate-term resistance positioned well above the current market.
The 14-day Relative Strength Index (RSI) near 39 remains below the neutral 50 threshold, signaling negative momentum. Although the RSI has not reached the conventional oversold region below 30, its subdued reading suggests that buyers have yet to regain meaningful control.
Initial resistance stands at 178.20. A daily close above this level could weaken the immediate bearish structure and expose the 180.00 psychological barrier, followed by the upper Bollinger Band near 180.75. Beyond these levels, the 100-day SMA at 182.90 represents a more substantial resistance zone.
On the downside, the lower Bollinger Band near 175.65 constitutes the first critical support. A decisive daily close below this threshold would strengthen bearish continuation signals and expose the previous swing low at 175.34. A sustained breakdown beneath that area could open the way toward 172.27, representing a deeper downside extension.
The immediate technical bias remains negative while spot trades below 178.20, with confirmation of further weakness dependent on a breakdown through 175.65. A recovery above resistance, particularly alongside an RSI move back above 50, would challenge the bearish scenario.
Conclusion: Bearish Bias Persists Below 178.20
The EUR/JPY forecast remains tilted to the downside, supported by an RSI reading near 39, a position below the 20-day and 100-day moving averages, and the prospect of further BoJ policy normalization. Although Japanese overseas investment continues to create structural yen headwinds, intervention risks and changing bond flows complicate the outlook.
Resistance at 178.20 remains the immediate barrier to recovery, while 175.65 is the critical support level. A confirmed break below support would expose 175.34 and 172.27, whereas a sustained move above resistance would weaken the bearish configuration. Until that technical structure changes, downside risks remain dominant.