EUR/JPY Forecast: Euro Pulled Back Slightly Against the Yen

• The EUR/JPY currency pair has pulled back a bit during the trading session on Wednesday as we continue to flirt with the 50-Day EMA.
• Just below, the 200-Day EMA is sitting right around the ¥140 level, which of course is a large, round, psychologically significant figure.
• However, what catches my attention more than anything else is that we ended up forming a bit of a W pattern, so be interesting to see whether or not we can break out above the top of it.
• We have not yet, but the ¥143 level is the gateway to a much higher pricing.

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EUR/JPY Technical Outlook

If we do break out to the upside, the ¥146 level would be the target, but quite frankly I think we go higher than that in that scenario. All things being equal, the market will continue to pay close attention to the Bank of Japan, and what they are doing with the yield curve control. Keep in mind, they are fighting like hell to keep interest rates down to 50 basis points in the 10 year note. Ultimately, this is a situation where we would more likely than not have to pay close attention to the 10 year JGB, because if yields start to attack the 50 basis points level, then the Japanese will have to print yen in order to buy unlimited bonds and keep that yield down.

If we break down from here, I think there is a significant amount of support near the ¥138 level, where we have bounced from a couple of times in the past. Ultimately, a lot of this is going to come down to the interest rate markets, so you need to keep one eye on those charts, while you’re trying to trade these charts. It’s also worth noting that unlike the USD/JPY pair, we have seen a pullback, but it has been rather quiet in comparison to the dollar against the Yen. In other words, it shows more relative strength or perhaps better put, less relative weakness.

If the Bank of Japan continues to have to fight the bond market, it will work against the value of the yen given enough time. However, if yields around the world continue to drop, that relieves a lot of the pressure and it can allow the Japanese yen to strengthen against the Euro, the US dollar, the British Pound, etc.

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