The EUR/JPY currency pair continues its losing streak for a third consecutive session, currently trading near 162.80 during early Asian market hours on Friday. Despite the prevailing bullish structure within an ascending channel, recent technical indicators point to a potential shift in sentiment, raising concerns over short-term downside risks.
Tandexo brings expert insight to this issue through a comprehensive article.
Weakening Momentum Below the Nine-Day EMA
One of the first signs of caution emerged as EUR/JPY dropped below the nine-day Exponential Moving Average (EMA), now positioned at 163.41. This level typically acts as a short-term dynamic indicator, and a clean break underneath it often reflects fading bullish momentum.
As long as the pair remains under this threshold, traders may view rallies as corrective, rather than a resumption of the prior uptrend.
RSI Dips Below 50: Bearish Momentum Building
The 14-day Relative Strength Index (RSI) has also turned lower, now trading just below the 50 midpoint. This is a classic sign of a shift from bullish to bearish momentum. When the RSI hovers under 50, it suggests that sellers are gradually overtaking buyers, increasing the probability of further downside.
Unless there is a decisive move back above 50, short-term positioning may continue to favor the bears.
Key Support: Ascending Channel and 50-Day EMA
Price action is now testing a critical support zone near the lower boundary of the ascending channel, currently situated around 162.50. This level has repeatedly acted as a trend-defining threshold over the past several weeks. If EUR/JPY manages to hold above it, the broader bullish structure will remain intact.
However, directly beneath it lies the 50-day EMA, which sits at 162.23. A breakdown of both of these supports would be technically significant and could mark the beginning of a deeper correction phase.
In that case, the next potential downside target would be the March 4 swing low of 155.59, followed by 154.41, the lowest level recorded since December 2023. These levels would likely come into play only if current supports fail convincingly.
Limited Recovery Scope Amid Bearish Pressure
On the upside, any short-term recovery attempt would likely face immediate resistance around 163.41, the previous support now turned barrier. This level also aligns with the nine-day EMA and will act as a litmus test for the strength of any rebound. Even if bulls manage to push above it, there is limited room to run in the absence of a strong catalyst.
Further resistance is likely to emerge near the 164.00–164.50 range, where prior consolidation zones stalled upward momentum. Unless the pair decisively breaks above this band, bullish continuation toward the recent six-month high of 165.21, reached on May 13, seems unlikely in the short term.
That said, a rally through 165.21 would renew bullish conviction and could pave the way toward the nine-month peak of 166.69, last seen in October 2024.
Market Outlook and Volatility Risks
The near-term direction of EUR/JPY may also be influenced by macro fundamentals and central bank dynamics. The European Central Bank (ECB) has maintained a more cautious tone in recent meetings, signaling limited appetite for further tightening, while the Bank of Japan (BoJ) continues to uphold an ultra-loose monetary policy stance.
Any surprise comments or data that suggest a deviation from these expected paths could result in abrupt volatility, especially as the pair tests major technical levels. Traders should monitor updates such as Eurozone inflation data, BoJ commentary, and U.S. Treasury yields, which could indirectly impact sentiment through the global risk landscape. This is a time to exercise disciplined risk management, particularly when key technical areas are being challenged.
Conclusion
The EUR/JPY pair stands at a critical juncture. While the broader trend remains framed within an ascending channel, the recent break below the nine-day EMA and the drop in the 14-day RSI below 50 suggest bearish forces are gathering strength.
Key support levels at 162.50 (channel boundary) and 162.23 (50-day EMA) are now being tested. A close below both would likely confirm a shift in sentiment and increase the risk of a deeper decline toward 155.59 or even 154.41.
On the other hand, any rebound is likely to encounter strong resistance at 163.41, and unless this level is reclaimed decisively, the upside remains capped. Short-term bias leans bearish, and traders should watch for confirmation from both price action and momentum indicators before committing to directional trades.
The coming sessions may prove pivotal in determining whether EUR/JPY will sustain its medium-term bullish channel or begin carving out a corrective phase after months of gains.
