EUR/JPY rally continues as market eyes break above 170.00

• EUR/JPY trades near 170.00, its highest level since July 2024, on Friday.
• Soft Japanese data and steady BoJ stance undermine Yen demand.
• The euro remains firm despite a drop in Eurozone economic sentiment.

The Euro (EUR) strengthens against the Japanese Yen (JPY) on Friday, with the EUR/JPY pair climbing toward levels not seen since July 2024. The cross is buoyed by a combination of strong Euro demand and persistent Yen weakness, as diverging monetary policy outlooks between the European Central Bank (ECB) and the Bank of Japan (BoJ) continue to drive the uptrend.

At the time of writing, EUR/JPY is trading just shy of the 170.00 psychological level, hovering around 169.70 during the American session. The pair has broken out of a narrow consolidation range seen earlier in the week, where it remained largely capped between 168.20 and 169.00 from Monday to Thursday. Friday's upside move is fueled by soft Japanese economic data and sustained Euro strength, amid a broader risk-on mood and a weak US Dollar (USD) following mixed US macro data and renewed political pressure on the Federal Reserve (Fed).

Fresh Japanese economic data released earlier on Friday added to the Yen's weakness. The Tokyo Consumer Price Index (CPI) for June rose by 3.1% YoY, a decrease from the 3.4% rise in May. Additionally, Core Consumer Prices rose 3.1% YoY in June, easing from a 3.6% gain in May and falling short of the 3.3% forecast. This marked the first slowdown in core inflation since February, though the pace remains well above the Bank of Japan's 2% target. Meanwhile, retail sales grew 2.2% in May, down from an upwardly revised 3.5% in April and below the expected 2.7%, suggesting a softening in consumer demand. Japan's unemployment rate remained unchanged at 2.5% for the third straight month, aligning with forecasts but offering little support to the Yen.

Meanwhile, Eurozone data offered a mixed picture. The Euro Area consumer confidence indicator came in at -15.3 in June, unchanged from May and in line with preliminary estimates, suggesting household sentiment remains fragile. The economic sentiment indicator (ESI) slipped to 94.0 from 94.8 in May, missing market expectations of a slight improvement to 95.1. While the data points to subdued confidence across the region, it did little to dent the Euro's momentum on the day.

From a technical perspective, EUR/JPY is trading within a well-defined ascending channel, with the pair hovering near the upper boundary around 169.75. The bullish trend remains firmly intact, supported by a strong series of higher highs and higher lows since early June. The 21-day Exponential Moving Average (EMA), currently at 166.86, continues to act as dynamic support, reinforcing the near-term uptrend. The Relative Strength Index (RSI) has entered overbought territory, standing at 71.08, which suggests strong momentum but also warns of potential exhaustion or short-term pullback risks. Meanwhile, the Moving Average Convergence Divergence (MACD) remains firmly in bullish territory, with the signal line divergence widening, which further confirms the upward momentum. A sustained daily close above the 170.00 barrier could open the door for a move toward the July 2024 high near 171.00, while any corrective dips may find initial support at 168.20, followed by the EMA near 166.86.