Why I have my eyes on a bearish prize for EUR/JPY in 2025

The European Central Bank (ECB) and Bank of Japan (BOJ) have divergent policies, with the ECB amid an easing cycle and the BOJ more likely to hike next year. But if we also factor in the likely turbulence of another Trump presidency, the demand for the yen as a safe-haven could also play an important factor in 2025.

And regardless of whether it will be divergent monetary policies of risk-off flows which drives EUR/JPY lower next year, I feel that EUR/JPY bulls have seen the best part of the move after a 5-year rally, and the greater rewards could await bears at next year.

EUR/JPY technical analysis (1-year and monthly charts):

It’s not every day I look at a 1-year candlestick chart, but if want to anticipate the trade of the year, it could be a good start. And upon doing so, three things stand out:

EUR/JPY is on track for a fifth consecutive bullish year
It has failed to hold above the 2008 high set amid the global financial crisis (GFC)
An upper wick has formed, which puts this year on track for a shooting star reversal (bearish)

A closer look at the monthly chart reveals a strong rally from the 2020 low to 2024 high, before the volatile shakeout that saw prices plunge back below the GFC high. It appears that we have seen the first leg lower of a countertrend move, which implies at least one more dip lower next in 2025 as part of an ABC correction.

Assuming wave B landed at 166.82, a 100% projection sits near the 50% retracement level of the rally from the 2020 low around 144. Interestingly, a 138.2% projection lands almost precisely on a 61.8% retracement level of 137.71, whereas a 161.8% projection is just below 133. If these targets seem far-fetched, it should be remembered that yen pairs such as EUR/JPY tend to fall hard and fast during times of turbulence.

EUR/JPY technical analysis (weekly chart):

The weekly chart shows a potential head and shoulders top, which if successful suggest a downside target around 135. The weekly RSI is confirming price action, yet at the time of writing remains below 50, is trending lower with prices and is yet to reach oversold.

And given the magnitude of the drop from the 2024 high, I suspect bears could be waiting to fade into moves in anticipation of a much deeper correction. Which is also backed up with my proxy indicator for EUR/JPY positioning on the futures market.

EUR/JPY proxy futures positioning – COT report

I have created a proxy net-exposure indicator for EUR/JPY futures by taking the spread between EUR/USD and JPY/USD net exposure. While the CME do report exposure on EUR/JPY futures, volumes were too low for the readings to be of any use.

My proxy indicator suggests that net-long exposure to EUR/JPY topped around June for large speculators (shaded) and asset managers (dark blue dashed).
Large speculators are net short and their most bearish level in eight years.
While asset managers remain net long, their bullish exposure has fallen by -65% since the June high.

Price may remain elevated for now, but if market positioning is providing the lead it is, next year could be tough for EUR/JPY bulls.

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.