EUR/JPY extended its advance for a second session, trading near 185.00 in Asian hours on Monday after moving above the nine-period and 50-period Exponential Moving Averages. The volume-weighted average price is cited around 184.31, while the 14-day Relative Strength Index sits near 51, leaving momentum neutral-to-firm as the cross holds above key dynamic supports.
On the daily chart, price action remains contained within a symmetrical triangle, with the upper boundary placed around 185.90 and the lower boundary near 183.60. A break above the pattern would open scope towards the all-time high of 187.95, set on April 17. On the downside, initial support is aligned with the 50-day EMA at 184.91, then the nine-day EMA at 184.71; below there, attention shifts to the four-month low of 181.87 from March 16 and the six-month low of 180.81.
Technical Outlook and Market Drivers
We see the EUR/JPY cross is trading in a tightening range, signaling that a significant price move could happen soon. The pair is holding above key moving averages around the 185.00 level, showing some underlying strength. This coiling pattern, known as a symmetrical triangle, suggests that we should prepare for a breakout in the coming weeks.
This technical picture is developing as fundamental economic data shows a clear split between Europe and Japan. The latest figures show Eurozone inflation remains persistent at 2.6%, keeping the European Central Bank on a hawkish path. This policy stance should continue to provide support for the Euro.
At the same time, the Bank of Japan remains cautious about raising interest rates aggressively, even with its own core inflation recently reported at 2.8%. This wide interest rate differential has been the primary driver of EUR/JPY strength for the past two years. The fundamental story continues to favor a stronger Euro over the Yen.
Trading Strategy and Breakout Scenarios
Given the potential for a sharp move, we believe an effective strategy is to purchase volatility. Buying an options straddle, which involves buying both a call and a put option with the same strike price and expiry date, would allow us to profit from a large price swing in either direction. This positions us to capitalize on the breakout without having to predict its direction perfectly.
For those with a bullish bias, a sustained break above the triangle’s upper boundary at 185.90 would be our trigger. We would then look to buy call options, targeting the all-time high of 187.95 recorded in April. This move would confirm that buyers have taken definitive control.
Conversely, we must be prepared for a downside surprise if the price breaks below the triangle’s support around 183.60. A move like this would signal a significant shift in market sentiment. In that event, we would pivot to buying put options, with initial targets set at the March low of 181.87.
