[Exchange Rate] Is the high Euro and weak Yen about to change? | Yoshida Tsune's Exchange Rate Daily | Moneyクリ Money's investment information and media helpful for finance.

Euro/Yen has significantly surpassed the year-to-date high.

While the USD/JPY continues to trade significantly below its year-to-date high (158 yen), some cross-yen pairs, such as EUR/JPY, have recently updated their year-to-date highs (see Chart 1). So what are the underlying reasons for this, and will this rise (weakening yen) continue?

[Chart 1] Euro/Yen Weekly Chart (January 2024 - ) Source: Manex Trader FX The rise of the euro/yen accelerated after entering June. However, this movement diverged significantly from the Japan-Germany interest rate differential (euro superiority, yen inferiority) (see Chart 2). So why did the euro appreciate and the yen depreciate significantly diverging from the interest rate differential? One possible reason is that breaking significantly above the year-to-date high in June provided momentum.

[Chart 2] Euro/Yen and the difference in 2-year bond yields between Japan and Germany (from April 2025) Source: Created by Monex Securities based on Refinitiv data Due to this acceleration in the rise, the Euro/Yen has significantly exceeded the 52-week MA (moving average, as of June 13, 162.6 yen) (see Chart 3). The Euro/Yen has been above the 52-week MA for three consecutive weeks up to last week. Additionally, the Euro/Yen temporarily rose above 167 yen, but a level above 167 yen would be nearly 3% above the 52-week MA. Will this rise in the Euro/Yen continue?

[Chart 3] Euro/Yen and 52-week MA (2000 onwards) Source: Created by Monex Securities from data provided by Refinitiv.

The relationship with the 52-week MA suggests a temporary rise within a downtrend = Euro/Yen

The Euro/Yen has significantly and deeply fallen below the 52-week moving average since July 2024. This is the first occurrence within the Euro/Yen's rising trend that lasted about four years, starting from 2020, indicating that the trend itself may have shifted from an upward to a downward direction.

The Euro/Yen fell below 155 yen in February 2025, marking a drop not seen since August 2024. In light of such movements, is it possible that the downward trend of the Euro/Yen ended early, within less than a year, and returned to an upward trend?

In the case of USD/JPY, it is usually the case that a single trend lasts for 2 to 3 years, and it is extremely rare for it to end in less than a year. Considering this, the EUR/JPY is still in a downward trend, and the recent rise, which goes against that trend, may only be a temporary movement.

The characteristic of temporary movements that go against a multi-year trend is that, based on past experiences, they tend to remain below a significant and prolonged break of the 52-week moving average. Referring to the experience of USD/JPY, which has the least "whipsaws," temporary rises during a continuing downtrend are unlikely to exceed the 52-week moving average for more than a month at most, and are likely to stay within about 5% above the 52-week moving average (see Chart 4).

[Figure 4] USD/JPY and 52-week MA (2000 onwards) Source: Created by Monex Securities from Refinitiv data.

A full rise to 170 yen is questionable? = May break below the 52-week MA by the end of June.

Let's apply this rule of thumb from USD/JPY to EUR/JPY. EUR/JPY has been above the 52-week MA for three consecutive weeks until last week. However, if such an increase is merely a temporary movement within a declining trend, and if, as we have already seen with USD/JPY, it is unlikely to last for more than a month, then there is a high probability that it will return to below the 52-week MA level around the end of June.

According to the empirical rule that temporary rises do not exceed 5% above the 52-week moving average at most, applying this to the euro/yen, with the current 52-week moving average being around 162 yen, it becomes a question of whether it can rise to 170 yen, which is 5% above that level.

The background of the rise in the Euro/Yen, which is detached from the interest rate differential, may include the decline in the credibility of the US dollar due to distrust in the Trump administration, as well as a significant influx of funds into Europe indicated by the sharp rise in European stocks. However, based on the relationship with the 52-week moving average observed so far, it is possible that the movement of a stronger Euro and weaker Yen is approaching a turning point.