The secret behind the euro exchange rate trend: Why do cross currency pairs experience bigger moves more easily than direct pairs?

In the foreign exchange market, many people only focus on the spot pairs like EURUSD, but they don’t realize that the cross pair EURJPY is actually a hidden profit goldmine.

Why does EURJPY have more market movement than EURUSD?

The answer is simple: interest rate differentials.

The European Central Bank is raising interest rates, the US is also raising rates, but the Bank of Japan remains at zero interest rate. What does this mean? Borrowing yen to buy euros earns you interest rate differentials every day. Once this arbitrage trade is activated, market volatility will far surpass that of the spot.

An example from March 2023 illustrates this: on the day the ECB announced a 0.5% rate hike, EURUSD only rose 0.11%, but EURJPY surged 1.1% within just 4 hours. The same event caused completely different reactions on two different charts—that’s the charm of the cross pair.

The 20-year story of EUR exchange rate trends

Looking back at the history of EURJPY, you’ll find several key moments:

2002-2007 Appreciation Period: Europe’s economy was booming, Japan was still sluggish. EUR rose from over 100 to nearly 170, investors made a fortune.

2008 Financial Crisis: Global collapse, money flowed into safe-haven currencies (yen), EURJPY plummeted to 112. Panic often presents the best opportunities for positioning.

2009-2012 Euro Debt Crisis: Europe was overwhelmed, the exchange rate declined to 94, many long positions were forced out.

Post-2012 Reversal: Japan launched “Abenomics,” the central bank unleashed massive easing, the yen depreciated, EURJPY rebounded to around 149. The pandemic in 2020 further intensified this trend—global central banks flooded the market, interest rate differentials reasserted themselves, EURJPY kept climbing.

Recent Changes: In 2023, the ECB began tightening policy stance, more hawkish than the Fed, pushing up the euro exchange rate and driving EURJPY to new highs.

What drives EURJPY movement?

Economic Data: EU GDP, unemployment, inflation data determine the strength of the euro. Good data means euro appreciation, and the cross pair will also rise.

Central Bank Policies: ECB rate hikes mean euro appreciation; if the Bank of Japan signals any tightening, the yen will strengthen quickly, causing EURJPY to fall. This is the most important factor to watch.

Global Risk Sentiment: Optimistic markets favor yen arbitrage trades; pessimistic markets cut positions, yen appreciates, exchange rates decline.

Geopolitics and Commodity Prices: The Ukraine war, OPEC production cuts all push up commodity prices, increasing inflation expectations, prompting central banks to change policy stance.

How to capture trading opportunities from a technical perspective?

RSI Strategy: When RSI breaks above 70 into overbought territory and then falls back below 70, it’s a typical sell signal. For example, in 2021, investors sold at 132.774 and closed at 129.899, earning 287,500 yen per lot.

MACD Golden Cross: On March 14, 2022, MACD showed a golden cross, signaling a buy. After 19 trading days, a death cross appeared, and positions were closed, netting 589,000 yen.

Trendlines and Channels: On the daily chart, EURJPY is in a clear upward channel. In the short term, you can short when touching the upper resistance of the channel, using RSI overbought or MACD death cross as confirmation.

What will happen in the future? Short-term vs. long-term logic differ

Short-term bullish: The ECB remains hawkish, and upward momentum for the euro still exists. Technically, the high point of October 2023 at 148.4 or even higher is a target.

Medium to long-term risks: The biggest variable is the Bank of Japan. Once Japan confirms a shift from ultra-loose to normalization, it will be a “once-in-a-decade” shorting opportunity. At that point, interest rate differential trading will collapse, the yen will surge, and EURJPY will enter a long-term bear market.

Investors should closely monitor Japan’s inflation data and central bank officials’ statements. Once a shift is confirmed, the market will react fiercely and without warning.

Practical trading advice

Follow economic calendars; CPI or GDP surprises will drive exchange rates; pay attention to central bank signals—any hints of rate hikes or tightening are trading signals; use technical indicators to confirm entry points but avoid overtrading. Although EURJPY is volatile, it is ultimately driven by fundamentals. Trading without macro awareness can be very risky.