EUR/JPY Forecast: 185.71 Holds as the Carry Trade Grinds On
- The euro is at 185.71 against the yen, up 0.11% and holding above all four of its 4-hour averages.
- A 1.4-point policy gap between the ECB and the Bank of Japan continues to make the pair expensive to be short.
- The 186.00 handle is the level that decides whether the August advance extends.
Fundamental Analysis: EUR/JPY
The European Central Bank left its key rate at 2.40% in July, having raised by 25 basis points in June for the first time in three years, with the deposit facility at 2.25%. The Bank of Japan held at 1.0% at its own July meeting on an 8-1 vote, following a 25 basis point rise in June. That leaves a gap of roughly 1.4 percentage points, and in a market with no strong directional conviction, a gap that size does the work on its own.
The counterweight is that the gap is narrowing rather than widening, and the pressure is coming from Tokyo. One BoJ board member dissented in July in favour of an immediate move to 1.25%, and the Bank warned that underlying inflation could exceed its 2% target even as it trimmed its FY2026 forecast to 2.5% from 2.8%. The next meeting is 18 September.
So the carry still pays, but it is being collected against a central bank that has already moved once this year and has a dissenter arguing for more. That is why the advance has been a grind of small candles rather than an impulsive run, and why each approach to 186.00 has been sold rather than bought.
Technical Analysis: EUR/JPY
The 4-hour chart shows a base near 179.95 on 4-5 August giving way to a stair-step climb of almost six yen. The four moving averages have compressed into a tight band at 185.493, 184.966, 184.599 and 184.584, and price sits above all of them, which is a trend in good order but with very little cushion beneath it.
Resistance is 186.00, where the last three attempts have stalled, then 187.00. Support is the 185.493 average, then 184.966. A close below the 184.584 band would collapse the moving average structure and invalidate the carry-led read.
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