EUR/JPY Analysis: New High of the Year

For the first time since 2008, the rate exceeded the level of 161 yen per euro.

The strength of the euro and the weakness of the yen are contributed to by different policies of central banks.

The European Central Bank's chief economist said on Wednesday that he had not seen enough progress in curbing inflation. This may mean a continuation of the ECB's tight monetary policy and the “expensive euro”. The head of Ireland's central bank said on Wednesday that further interest rate hikes should not be ruled out, while the Bundesbank president said the "last mile" to the inflation target could be the hardest.

At the same time, in Japan, interest rates are effectively negative, making the yen fundamentally weak against the euro. The uptrend channel on the EUR/JPY pair (shown in blue) dates back to 2022. The stability of the trend is also evidenced by the upward-directed MA (100) — the rate is stably above it.

Wherein:
→ the psychological level of 160 yen worked as an important resistance in 2023, but in November the price consolidates higher;
→ yesterday, the bulls broke through the level of 161 yen per euro;
→ The RSI rises into the overbought zone, making the market vulnerable to a pullback.

At the same time, it is acceptable to assume that the yen may strengthen as a result of statements by representatives of the Japanese authorities (former or even current) about changing the monetary policy. As such, signals are increasingly broadcast through the media, 2024 could be the period when the yen situation changes from verbal interventions to real actions (including rate hikes).

Taking into account the above, one should not exclude the scenario of a return to the level of 160 yen per dollar, especially taking into account the fact that this level was not clearly tested after the bullish breakout.

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