The EUR/JPY currency pair experienced a downward drift on Wednesday, influenced by renewed interest in the Japanese Yen (JPY). The cross attracted intraday sellers during the Asian session, showcasing its struggle to capitalize on an overnight bounce from the mid-161.00s. This movement comes amid a complex market environment, where risk-off sentiment prevails ahead of the Federal Reserve's upcoming interest rate decision. In this context, the currency pair faces significant challenges, with its vulnerability to a further slide becoming apparent.
The recent trading patterns have highlighted the EUR/JPY cross's repeated failures near the 164.70-164.80 region, forming multiple tops on the daily chart. This area also aligns with the 200-day Simple Moving Average (SMA), indicating a crucial point of resistance. Market analysts observe that a sustained strength beyond this mark could trigger a short-covering rally towards the 163.65-163.70 horizontal resistance, with the ambition of reclaiming the 164.00 mark. However, these aspirations are tempered by the pair's current struggles and the broader market dynamics.
In particular, the anticipated challenges for the EUR/JPY cross are compounded by a mix of geopolitical and economic factors. Bets on a potential rate hike by the Bank of Japan (BoJ) and concerns over trade wars are underpinning these challenges. Notably, tariff threats recently made by US President Donald Trump have intensified risk aversion, contributing to the currency pair's downside pressure. As such, investors are advised to approach with caution, as neutral oscillators on the daily chart warrant careful consideration before placing bearish bets.
Despite these pressures, some support levels may offer temporary relief for the EUR/JPY cross. The 161.55-161.50 area, representing the weekly low touched on Monday, continues to provide a degree of support. However, should the pair fail to maintain this level, it is vulnerable to accelerating its fall towards the 160.60 intermediate support and potentially reaching the psychologically significant 160.00 mark. A further descent could see the pair targeting the monthly trough situated around the 159.70-159.65 area.
The complexity of the current market landscape is not lost on traders and analysts, who are closely monitoring developments that could influence the EUR/JPY cross's trajectory. The Federal Reserve's interest rate decision looms large, as does ongoing speculation around potential policy shifts by the BoJ. Both central bank decisions hold significant sway over currency movements, and their outcomes will likely shape investor sentiment in the coming days.