October 1, 2026
The EUR/JPY pair experienced a sharp decline early on Wednesday, breaking below a key support level at 178 yen. However, buyers appear to be stepping in, suggesting the downside may be limited.
The euro dipped against the Japanese yen during the early trading session, testing the critical ¥178 support zone. However, the pair quickly reversed course, forming a classic hammer candlestick pattern on the chart. This technical signal indicates that the ¥178 level is likely to hold as a strong floor, paving the way for a potential rebound.
The 181 Yen Level Remains Key Resistance
Looking upward, the ¥181 level has recently acted as a formidable resistance barrier. The interest rate differential continues to favor the euro, as Japan faces significant constraints on raising interest rates due to its massive national debt. This economic backdrop suggests that the Bank of Japan is unlikely to implement aggressive tightening policies in the near future.
While the Bank of Japan has occasionally intervened in currency markets, these actions appear aimed primarily at smoothing excessive volatility rather than reversing the overall trend. Additionally, a potential shift in energy flows toward the European Union could alleviate some of the region’s economic concerns, further supporting the euro’s recovery.
If the market breaks below Wednesday’s low, it could trigger a deeper decline toward the ¥176 or even ¥175 levels. However, the overall strategy remains favorable for buying dips in yen-related pairs, especially given the positive interest rate differential. Despite central bank interventions, the carry trade setup remains intact, though positions against the Swiss franc are preferred for risk management reasons. The core technical structure, however, remains highly similar.
Christopher Lewis is a technical analyst and market commentator at DailyForex with over two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management.