Introduction

The EUR/JPY cross has been trading near highs, yet underlying fundamentals suggest downside risk. The euro suffers from stagnant growth and fiscal strain, while Japan remains hampered by debt and ultra-loose policy. Despite this, sentiment remains heavily against the yen, creating a stretched dynamic. A technical slowdown around resistance strengthens the case for a corrective move lower.

Fundamental Analysis

The eurozone economy is flat, with GDP growth near zero, rising unemployment, and persistent fiscal deficits. Inflation has fallen, limiting the European Central Bank’s capacity for tightening. Meanwhile, Japan’s growth remains subdued and its debt-to-GDP is extreme, but the Bank of Japan’s ultra-low rates continue. This divergence sustains carry trades but leaves the EUR/JPY cross exposed should sentiment shift away from risk.

Sentiment Analysis

Sentiment tilts against the yen (–35), while the euro also holds a slight negative score (–5). Pair sentiment is heavily bearish at –45, reflecting the risk of overextension. COT data highlight persistent speculative euro longs against the yen, suggesting vulnerability to unwinds. Any shift in global risk appetite could accelerate downside in the EUR/JPY market.

Technical Analysis

EUR/JPY trades above the Ichimoku cloud but momentum is fading. RSI at 57 is neutral but losing steam, and MACD shows a weakening bullish crossover with a flattening histogram. Price has failed to clear the 174.0 resistance level, while support is visible around 171.5. Volume is declining, reinforcing the risk of reversal in the EUR/JPY trend.

Conclusion

The EUR/JPY cross presents downside potential as eurozone weakness collides with stretched positioning against the yen. Technical signals of slowing momentum strengthen the case for a corrective move. A short entry below 172.5 targets 171.5 initially, with further downside possible toward 170. All in all, watching EUR/JPY closely could be pivotal for traders considering this pair.