In the foreign exchange (Forex) market, the EUR/JPY pair has become increasingly interesting as it approaches a critical resistance level, largely driven by a broader risk-on sentiment in global markets. The euro rallied sharply against the Japanese yen, propelled by a surge in global risk appetite following major macroeconomic developments.
This movement places the pair on watch for a potential bullish breakout, especially as it tests significant technical resistance zones. TelaraX’s expert commentary on the topic is featured in their recent article.
Market Context: Risk Appetite Lifts EUR
EUR/JPY saw a notable rally, reflecting broad-based yen weakness. The Japanese yen was sold off aggressively against major currencies, including the euro, dollar, and Australian dollar. This move was not isolated but rather a part of a larger trend driven by renewed market optimism after the weekend’s US-China trade discussions.
Over the weekend, American and Chinese officials agreed to cut tariffs substantially, giving themselves a 90-day window to negotiate the terms of the ongoing trade war. This development shifted global sentiment toward a risk-on stance, which typically favors riskier assets and currencies.
In this type of environment, safe-haven currencies like the Japanese yen often underperform. The euro, while not traditionally seen as a high-risk currency, becomes relatively more attractive in comparison to the ultra-defensive yen. This relative valuation dynamic is critical in Forex markets and has led to the strengthening of EUR/JPY.
Risk-On Correlations
Historically, EUR/JPY is strongly influenced by changes in risk sentiment. The pair tends to rise when global equities, commodities like Bitcoin, and risk-sensitive currencies such as the Australian dollar are rallying. As the yen weakens, traders shift capital toward higher-yielding or risk-tolerant alternatives, bolstering pairs like EUR/JPY.
This makes the current rally more than just a technical anomaly—it is part of a macro-driven currency rotation. Nevertheless, it’s important to remember that the euro itself is not a true risk currency—it’s simply less risk-averse than the Japanese yen. Hence, EUR/JPY’s movements are frequently a proxy for broader market sentiment.
Technical Analysis: Golden Cross and Resistance Zone
From a technical standpoint, the EUR/JPY pair has displayed a clear bullish signal. The most significant development is the 50-day Exponential Moving Average (EMA) crossing above the 200-day EMA—a technical pattern known as a Golden Cross. This crossover, occurring near the ¥162 level, is a long-term bullish indicator that suggests upward momentum could continue if conditions remain favorable.
Currently, the ¥165 level is serving as major resistance. During Monday’s trading session, EUR/JPY briefly breached this level, but failed to hold the gains, retreating modestly by the close. This intraday rejection highlights how strong seller interest is at this zone, but the continued pressure indicates that bulls are preparing for another push.
If the pair can manage a decisive daily close above ¥165, it could trigger a technical breakout, opening the path to higher levels such as ¥167.50 or even ¥170 over the medium term. However, failure to break above resistance could result in a retracement back to support near ¥162, which is reinforced by the converging EMAs.
Confirming Signal: Look Beyond EUR/JPY
Traders should also watch other yen pairs, such as USD/JPY, GBP/JPY, and AUD/JPY, to validate a broader yen weakness trend. If these pairs are also moving higher, it would provide additional confirmation for a bullish EUR/JPY setup. Conversely, if other JPY pairs stall or reverse, it could signal a false breakout or a return to consolidation.
Moreover, a breakdown below this low in EUR/JPY would indicate a failed rally, potentially pushing the pair back toward the ¥162 level. This would place it once again within the range-bound structure it has occupied in recent weeks. Until a clear directional move occurs, the market remains coiled, ready for a breakout but still susceptible to mean reversion.
Conclusion
The EUR/JPY pair is currently testing a significant resistance level at ¥165, supported by both fundamental risk-on sentiment and bullish technical signals like the Golden Cross. As global risk appetite improves, driven by US-China trade developments, the yen continues to weaken, pushing EUR/JPY toward a potential breakout.
However, the market has yet to make a decisive move, and traders should be cautious about false breakouts and remain attentive to price action in related JPY crosses. A breakout above ¥165 could initiate the next leg higher, while failure to do so might return the pair to its consolidation range.
In summary, EUR/JPY is at a technical inflection point, and its next move may set the tone for risk sentiment in currency markets going forward.
