EUR/JPY Forecast: Critical 100-Day SMA Test Looms After Alarming Range Breakdown

LONDON, March 2025 – The EUR/JPY currency pair faces a critical technical juncture as bearish momentum intensifies, pushing the exchange rate toward its 100-day Simple Moving Average following a decisive breakdown from its recent trading range. This development marks a significant shift in market sentiment that could influence global currency flows throughout the second quarter of 2025.

EUR/JPY Technical Breakdown: Analyzing the Range Collapse

Traders witnessed a substantial technical development this week as EUR/JPY breached key support levels that had contained price action since January 2025. The pair’s descent from the 165.80-167.20 consolidation zone represents more than a routine correction. Market analysts now scrutinize whether this movement signals a broader trend reversal or a temporary adjustment within the prevailing uptrend.

Technical indicators provide crucial context for this breakdown. The Relative Strength Index (RSI) declined from neutral territory to approach oversold conditions, while trading volume surged during the breakdown sessions. Furthermore, the Moving Average Convergence Divergence (MACD) histogram turned negative for the first time in eight weeks. These concurrent signals suggest institutional participation in the selling pressure rather than mere retail profit-taking.

Historical Context of 100-Day SMA Support

The 100-day Simple Moving Average has served as a reliable dynamic support level for EUR/JPY throughout 2024 and early 2025. Historical data reveals three previous tests of this indicator since October 2024, each resulting in significant bounces averaging 2.8%. Market participants now question whether this pattern will repeat or if fundamental shifts will override technical support.

Fundamental Drivers Behind the EUR/JPY Movement

Multiple fundamental factors converged to trigger the EUR/JPY range breakdown. The European Central Bank maintained its cautious stance on interest rate adjustments during its March policy meeting, emphasizing persistent concerns about economic growth rather than inflation. Meanwhile, the Bank of Japan continued its gradual normalization path, with recent commentary suggesting potential adjustments to yield curve control parameters before mid-year.

Economic data releases further influenced currency dynamics. Eurozone manufacturing PMI readings disappointed market expectations, registering 47.8 versus the anticipated 48.5. Conversely, Japan’s export figures exceeded projections, benefiting from sustained demand in Asian markets and a weaker yen supporting competitiveness. These divergent economic trajectories naturally pressured the EUR/JPY cross.

Central Bank Policy Divergence Analysis

Monetary policy expectations create the primary fundamental backdrop for EUR/JPY movements. The European Central Bank faces a complex balancing act between supporting economic recovery and managing inflation expectations. Recent statements from ECB officials indicate a preference for maintaining current rates through at least Q3 2025, with potential cuts contingent on clearer signs of economic stabilization.

Simultaneously, the Bank of Japan navigates its own policy transition. Governor Kazuo Ueda’s recent parliamentary testimony highlighted growing confidence in achieving sustainable inflation around the 2% target. Market participants increasingly price in potential policy adjustments, including a possible end to negative interest rates or modifications to bond purchase programs. This policy divergence directly impacts the EUR/JPY exchange rate through interest rate differential expectations.

Market Structure and Institutional Positioning

Commitment of Traders (COT) reports reveal significant shifts in institutional positioning preceding the range breakdown. Leveraged funds reduced net long EUR/JPY positions by approximately 32% in the week ending March 14, 2025. This reduction marked the largest weekly decrease since November 2024 and preceded the technical breakdown by just three trading sessions.

Market microstructure analysis provides additional insights. Order flow data indicates concentrated selling pressure emerged around the 166.50 level, with multiple large institutional orders executed within a narrow price band. This concentration suggests coordinated position adjustments rather than gradual profit-taking. The breakdown accelerated once these initial support levels failed, triggering stop-loss orders and algorithmic selling programs.

Key technical levels now warrant close monitoring:

• Immediate support: 100-day SMA (currently ~163.80)
• Secondary support: 200-day SMA (currently ~161.40)
• Resistance levels: Previous range support at 165.80, then 167.20
• Psychological level: 165.00 round number

Risk Assessment and Trading Implications

The current EUR/JPY situation presents distinct risk parameters for different market participants. Short-term traders monitor the 100-day SMA test for potential bounce opportunities, while longer-term investors assess whether this movement represents a trend change requiring portfolio adjustments. Volatility expectations have increased substantially, with one-month implied volatility rising from 7.2% to 9.8% during the breakdown period.

Risk management considerations become particularly crucial in this environment. Position sizing should account for increased volatility, while stop-loss placement requires careful analysis of both technical levels and upcoming economic events. The March 28 release of Japan’s Tokyo CPI data and April 3 Eurozone inflation figures represent potential catalysts that could either reinforce or reverse the current bearish momentum.

Historical Parallels and Pattern Recognition

Technical analysts draw parallels between the current EUR/JPY setup and similar historical patterns. The June 2023 range breakdown followed comparable technical signals, resulting in a 4.8% decline before establishing a new equilibrium. However, market conditions differ substantially in 2025, with different central bank policies and global economic dynamics influencing price action.

Pattern recognition suggests several potential scenarios. A successful hold above the 100-day SMA could lead to consolidation and gradual recovery toward previous range levels. Alternatively, a decisive break below this key indicator might trigger further declines toward the 200-day SMA. Volume analysis during the initial test will provide crucial evidence about which scenario markets favor.

Global Context and Cross-Market Correlations

The EUR/JPY movement occurs within broader global market dynamics. Correlation analysis reveals strengthening relationships with other yen crosses, particularly GBP/JPY and AUD/JPY, suggesting yen strength rather than euro weakness primarily drives the movement. Meanwhile, EUR/USD has shown relative stability, supporting this interpretation of yen-driven dynamics.

Global risk sentiment influences EUR/JPY through multiple channels. Equity market volatility, particularly in technology sectors, often correlates with yen movements due to its traditional safe-haven status. Recent NASDAQ fluctuations have exhibited increased correlation with yen crosses, including EUR/JPY. This relationship adds another dimension to analysis beyond direct currency fundamentals.

Conclusion

The EUR/JPY forecast now centers on the critical test of 100-day SMA support following the significant range breakdown. Technical indicators suggest bearish momentum has strengthened, while fundamental factors reveal diverging monetary policy trajectories between the European Central Bank and Bank of Japan. Market participants must monitor the 163.80 level closely, as its defense or breach will likely determine medium-term direction. Regardless of immediate outcome, increased volatility and careful risk management remain essential for navigating this evolving EUR/JPY landscape in 2025.

FAQs

Q1: What does testing the 100-day SMA mean for EUR/JPY?
The 100-day Simple Moving Average represents a key dynamic support level that has historically provided buying interest. A test indicates the pair has declined sufficiently to reach this important technical indicator, which often triggers decisions by algorithmic traders and institutional investors.

Q2: Why did EUR/JPY break its trading range?
Multiple factors converged including divergent central bank policies, disappointing Eurozone economic data, stronger Japanese export figures, and shifts in institutional positioning. These elements created sufficient selling pressure to breach technical support levels.

Q3: How significant is the 100-day SMA as a technical indicator?
The 100-day SMA carries substantial technical significance as it smooths price data over approximately five months of trading. Many institutional trading algorithms reference this indicator, and historical tests have frequently resulted in meaningful price reactions.

Q4: What are the key levels to watch after the range breakdown?
Traders should monitor the 100-day SMA (~163.80) as immediate support, followed by the 200-day SMA (~161.40). Resistance now appears at the previous range support (165.80) and the range high (167.20). The psychological 165.00 level may also influence short-term price action.

Q5: How does Bank of Japan policy affect EUR/JPY?
The Bank of Japan’s monetary policy directly influences the yen’s value. Expectations of policy normalization (reducing stimulus) typically strengthen the yen, thereby putting downward pressure on EUR/JPY. The current policy divergence with the ECB represents a fundamental headwind for the pair.