EUR/JPY Price Forecast: Bullish Outlook Sustained Above 165.50

Summary

　　The EUR/JPY exchange rate remains positive and is projected to maintain a bullish stance above the 165.50 level despite recent declines, primarily driven by the European Central Bank's (ECB) monetary policy considerations.

Lead

　　In the early European session on Wednesday, the EUR/JPY traded lower, hovering around 165.75, with analysts suggesting the bullish outlook can still be maintained as long as the support level at 165.50 holds. This price action is influenced by the anticipated moves of the ECB regarding interest rates amid concerns of a decrease in euro value due to potential cuts in deposit facility rates.

Main Body

　　The EUR/JPY pair drifted downward to approximately 165.75 during Wednesday's early trading session, reflecting some selling pressure fueled by expectations that the ECB may further cut its deposit facility rate later this year. The ongoing anticipation related to the ECB's monetary policy has made market participants cautious, impacting the euro's strength against the yen.

　　Despite the current dip, the optimistic outlook for the EUR/JPY persists, largely supported by technical indicators. A significant aspect of this positive sentiment hinges on the pair's ability to remain above the key level of 165.50, which is seen as a crucial psychological barrier. If the pair successfully holds above this support level, it could reaffirm a bullish sentiment towards potentially targeting higher resistance levels ahead.

　　From a technical analysis perspective, the immediate resistance levels are identified within the range of 166.00 to 166.10, corresponding to the highs observed on October 29. A decisive break and hold above this area is critical. Such a move could pave the way for rallying towards 166.55, marking the upper boundary of the Bollinger Band indicator. The next resistance level is projected at 167.95, which corresponds to the high observed on July 30, further reinforcing a bullish scenario.

　　The underlying market strength is corroborated by momentum indicators; notably, the Relative Strength Index (RSI) is positioned above the midpoint near 62.20, indicating continued buying potential. Moreover, the EUR/JPY has consistently traded above its 100-period Exponential Moving Average (EMA), a positive sign suggesting a continuation of the upward trend.

　　However, on the downside, the first support is located at the previously mentioned 165.16, which corresponds to the low of October 29. A sustained downward breach below this level may trigger a more substantial retracement, potentially extending to 164.32 and the lower limit of 164.06, denoting critical levels where selling pressure may intensify.

　　Traders remain on alert, particularly in light of macroeconomic influencers such as inflation data and ECB policy shifts. Recent trends in eurozone inflation indicate stability around the ECB's target rate of 2%. Nonetheless, uncertainties remain as geopolitical tensions and tariff discussions could weigh on economic growth prospects. The ECB's forthcoming meetings will be pivotal in shaping monetary policy decisions, impacting both the euro's value and EUR/JPY dynamics.

Conclusion

　　In summary, while the EUR/JPY exchange rate has drifted lower to around 165.75, the bullish outlook remains intact above the critical support level of 165.50. The immediate focus for traders will be on both the resistance at 166.00-166.10 and the support level at 165.16 as the market reacts to upcoming ECB decisions and macroeconomic developments. Investors should closely monitor inflation trends and ECB announcements as these will be fundamental in shaping future price action for the cross.