FX.co ★ EUR/JPY. Euro retreats, but keeps on fighting

EUR/JPY cross pair has been in a clear upward trend for the past three weeks. It hit a 7-year high of 145.60 this week, rising from the level of 137 it held in late August. The monthly chart suggests the pair's upward moment is even stronger. After falling to 133 last month, EUR/JPY jumped by 1200 points, recouping its losses. This massive upsurge can be attributed to ECB's hawkish moves giving support to the euro, as well as BOJ's dovish stance pushing the yen down.

The pair is currently undergoing a correction, giving traders an opportunity to open long positions. However, the Japanese yen has one notable advantage over the euro that it has not realized yet - the possibility of a currency intervention. So far, Japanese officials have ignored the devaluation of JPY, but after USD/JPY hit 140, government officials and politicians began expressing concern.

They were later joined by the Bank of Japan's governor Haruhiko Kuroda, who also expressed his concerns over the yen's plunge. "Sharp currency moves are undesirable as they destabilise corporate business plans and heighten uncertainty," Kuroda said after the meeting with Japanese Prime Minister Fumio Kishida. These remarks gave some support to the yen, as market players speculated about a possible real intervention by the Japanese authorities. Many economists now debate how much the Japanese yen should fall against the US dollar to trigger such an intervention. Some experts believe USD/JPY should settle above 145.00, while others assume the Japanese authorities would wait until the pair hits 150.00.

At this point, however, the risk of a currency intervention has declined significantly. USD/JPY tested 145.00 last week and retreated afterwards, hovering near 142.00 at the moment of writing. This situation has influenced JPY cross pairs. Japanese officials have kept the intervention off the table so far. In regards to EUR/JPY cross, other fundamental factors are negatively affecting the Japanese yen.

The cross pair's uptrend has been fuelled by the monetary policy divergence of the European Central Bank and the Bank of Japan. The Japanese regulator maintains its dovish stance, despite rising inflation in the country. According to forecasts, the BOJ would only consider suspending its COVID relief program while maintaining its ultra-low interest rates and dovish stance.

At the same time, the ECB has already committed itself to a hawkish course and increased interest rates by 75 basis points. Christine Lagarde has clearly announced the timeframe of the monetary tightening cycle - 2-5 policy meetings. This move has not weakened the euro's position against the yen. Furthermore, some ECB policymakers have stated that they would back a 50 or even 75 bps move at the next meeting. Reuters reported that the EU regulator could increase the key interest rate to 2% or higher to quell record high inflation in the eurozone. Earlier, the news agency's sources correctly predicted that the ECB would increase the rate by 75 bps.

Despite the ongoing correction, the EUR/JPY cross could still resume its uptrend.

Technical factors also confirm the pair's upside potential. At the H4 timeframe and higher, the cross is currently at the upper line or between the upper and medium line of the Bollinger Bands indicator. The Ichimoku indicator has formed a strong bullish Parade of Lines signal. Any southward retracements can be used for opening long positions, with 145.40 (upper line of the Bollinger Bands indicators on the D1 timeframe) being the target.