• The Euro rallied a bit early during the trading session on Tuesday as we are above the 185 Yen level.

• The 185 Yen level is a large round psychologically significant figure that is also backed up by the 50-day EMA to offer support.

  

The EUR/JPY market is likely to go looking towards higher levels at this point. We continue to see buyers come in and try to take advantage of these dips. If we were to fall lower from here, then the 183.50 level would be an area that we need to watch as well.

Interest Rate Differentials and Central Bank Wiggle Room

All things being equal, keep in mind that the interest rate differential will favor the Euro, and of course, the Bank of Japan may have a little bit of wiggle room because inflation looks like it is slowing down in Japan. But at the same time, they did intervene a few weeks ago, so I think the upside might be somewhat protected as well.

I think maybe somewhere around the 187.50 Yen level you would have to be cautious because of the market memory there and the possibility that the Japanese get involved, although the real trigger would probably be how the US dollar is trading against the Yen.

But nonetheless, we have a situation where I think you’ve got some upside here, probably for several days once we break out, but it might be somewhat limited because of that previous action. Ultimately, I have no interest in shorting this market. I think we’ve got a situation where the buyers win out.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire