Insights 
VT 
Market Dynamics and Risk Sentiment
If EUR/JPY surpasses the 170.00 mark, the next focus is on the 78.60% Fibonacci retracement at 170.93. Conversely, renewed tensions or potential Japanese rate hikes could increase bearish pressure, targeting supports at the 10-day SMA of 167.84 and the 61.80% Fibonacci retracement at 167.40.
Understanding risk sentiment is pivotal in tracking market dynamics. In a risk-on market, risky assets gain, benefiting commodity currencies like the AUD, CAD, and NZD. However, in risk-off periods, the US Dollar, Japanese Yen, and Swiss Franc strengthen due to their safe-haven status.
This article explores the current stance of the Euro against the Japanese Yen, honing in on the level of 170.00 as a firm resistance. At the time of writing, the pair hovers close to this threshold, trading near 169.00. Recent gains—particularly the 3% move higher during May—suggest the Euro has enjoyed a boost from improved market sentiment, especially after the geopolitical situation in the Middle East showed signs of stabilisation. That said, we’re not seeing unrelenting upside pressure.
The technicals give a mixed view. The Relative Strength Index (RSI), which measures momentum, stands at over 68. While not in extreme territory, it is getting close to the 70 mark, which would typically imply an overbought asset. In other words, some of the heat may be coming off, especially if profit-taking begins to seep in or if short-dated traders rotate out of stretched positions.
Interest Rate Expectations and Market Sentiment
Support around 168.56 appears to be holding for now, though not with absolute conviction. Should the Euro-Japanese Yen pair climb beyond 170.00, that would leave 170.93—coinciding with the 78.6% Fibonacci retracement—as the next technically-driven obstacle. Traders would do well to prepare for increasingly erratic price behaviour around this range, as breakout attempts often lure in both stop orders and fading strategies.
Macroeconomically, Japan continues to grapple with sluggish rate policy. Interest differentials remain wide in favour of the Euro, keeping the Yen on the defensive, particularly against other G10 currencies as well. The Bank of Japan has maintained its highly accommodative stance, even as hints of potential hikes loom in the background. These small rumblings are enough to provoke caution, especially for those leaning heavily on carry.
Should there be any re-emergence of geopolitical stress—or if inflation data out of Tokyo shifts the Bank of Japan’s tone—downside risks can re-emerge quickly. The technical supports at 167.84 and 167.40 could then draw renewed interest, especially considering their alignment with the 10-day moving average and the 61.8% Fib level, respectively.
Risk appetite, or the lack thereof, remains a vital driver. We’re in a market that, when optimism flows, tends to lift risk-sensitive currencies. That pushes traders into Euros, or into the likes of AUD and NZD, particularly versus low-yielders. However, when nerves return, we see the unwinding of that positioning. This usually benefits haven currencies like the US Dollar, Yen, and Swiss Franc.
For us, it’s less about any one headline and more about recognising when sentiment quietly shifts direction. That’s when the repricing begins. You don’t always see the turn when it starts—but you certainly feel it when it gains pace.
Market participants who like to use directional bias tied to macro should keep an eye on interest rate expectations and short-term volatility metrics. That’s where the pressure valves release first. Especially now that we’re pressing against strong historical levels, patience could offer better entries than chasing momentum into resistance.
