EUR/JPY Bulls Stay Resilient Despite Stronger Japanese Inflation

Traders' Opinions

Summary:

EUR/JPY holds around 185.70 as stronger Japanese inflation boosts September BoJ hike expectations. However, persistent yield differentials and ECB tightening expectations continue to support the broader EUR/JPY outlook.

BUY EURJPY

EXP

TRADING

185.698

Entry Price

187.300

184.500

185.563 +0.014 +0.01%

0.0

Pips

Flat

184.500

Exit Price

185.698

Entry Price

187.300

EUR/JPY is trading around 185.70 on Monday, with price action relatively subdued as markets weigh stronger Japanese inflation against expectations that both the Bank of Japan and European Central Bank could tighten policy further.

The Yen received some support after Japan’s National CPI accelerated to 1.9% YoY in July from 1.6%, while core inflation climbed to 1.8%. The figures have strengthened expectations that the BoJ could move again as early as September, with markets now assigning roughly an 82% probability of a rate hike. Attention therefore shifts to BoJ Deputy Governor Ryozo Himino’s speech on Thursday for further guidance on the pace of normalization.

Despite those expectations, the Yen continues to struggle to generate sustained momentum. Japan’s interest rates remain considerably below those of other major economies, keeping carry-trade demand alive. Fiscal concerns and economic risks associated with the prolonged Middle East conflict and disruptions around the Strait of Hormuz are also preventing investors from turning decisively bullish on the Japanese currency.

On the other side, the Euro remains supported by expectations that the ECB will deliver another 25-basis-point hike in September, with markets pricing the probability at around 95%. This leaves EUR/JPY caught between increasingly hawkish expectations on both sides, although the persistent yield advantage enjoyed by the Euro continues to provide underlying support to the cross.

Deutsche Bank expects September to mark the ECB’s final hike, taking rates to 2.50%. The bank argues that recent inflation pressures appear relatively localized rather than evidence of a broad second-round inflation shock, reducing the likelihood that policymakers will need to tighten significantly beyond September. The upcoming ECB July meeting accounts could nevertheless attract additional attention as investors assess whether policymakers are becoming more concerned about energy-driven inflation.

EUR/JPY remains fundamentally supported despite growing expectations of another BoJ hike. The Yen may find periods of strength as September approaches, but the still-wide yield differential and Japan’s fiscal concerns continue to limit the case for a sustained JPY recovery. Unless the BoJ delivers a substantially more hawkish message than markets currently expect, dips in EUR/JPY could continue to attract buyers.

Technical Analysis

EUR/JPY continues to display a constructive bullish structure on the 1-hour chart, with the recovery from the early-August low near 179.50 developing into a consistent sequence of higher highs and higher lows. The rising trendline drawn from that low remains intact and continues to guide price higher, reinforcing the view that the broader recovery has not yet run its course.

The pair is currently consolidating around 185.70, immediately above an important support zone around 185.20–185.40. This area has repeatedly influenced price action and now converges closely with the rising trendline, making it an important technical floor. The recent pullback from above 186.00 has so far been relatively shallow, suggesting consolidation rather than a meaningful deterioration in bullish momentum.

As long as EUR/JPY remains above the 185.20 region and ascending trendline, the technical bias remains tilted higher. A renewed push through the recent swing high around 186.00–186.20 would strengthen the bullish case and could encourage another leg toward the major 187.20–187.40 resistance zone. This represents the most significant upside barrier visible on the chart and previously capped the pair before the sharp late-July decline.

A decisive breakout above 187.40 would be technically significant, confirming that buyers have reclaimed another major resistance level and opening the door toward 188.00, followed by the 189.50–190.00 region. The bullish projection on the chart supports this scenario, although some consolidation or a retest of 187.30 could occur before the next extension higher.

On the downside, failure to defend 185.20 and the rising trendline would weaken the immediate setup and expose the 183.30–183.50 support zone. This remains a more important structural floor, and only a sustained breakdown beneath it would seriously challenge the current higher-low formation. Further weakness could then expose 181.00.

Overall, the current consolidation looks more like a pause within the recovery than the beginning of a reversal. Provided the rising trendline and 185.20 support continue to hold, I would favor buying corrective dips, with 187.30 representing the next major objective before attention potentially shifts toward 189.50–190.00.

TRADE RECOMMENDATION

BUY EUR/JPY

ENTRY PRICE: 185.70

STOP LOSS: 184.50

TAKE PROFIT: 187.30

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EUR/JPY Bulls Stay Resilient Despite Stronger Japanese Inflation

Technical Analysis

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