EUR/JPY trades below 158.00 mark/multi-year peak, bullish potential seems intact
- EUR/JPY attracts some dip-buying on Thursday, albeit lacks follow-through.
- The BoJ-ECB policy divergence continues to act as a tailwind for the cross.
- The RSI on the daily chart holds in the overbought territory and caps gains.
The EUR/JPY cross reverses an intraday dip to the 157.25-157.20 area on Thursday and climbs back closer to its highest level since September 2008 touched the previous day. Spot prices, however, retreat a few pips during the early part of the European session and remain below the 158.00 mark, though the fundamental backdrop seems tilted firmly in favour of bullish traders.
Despite intervention fears, the Japanese Yen (JPY) continues with its relative underperformance in the wake of a more dovish stance adopted by the Bank of Japan (BoJ) and turns out to be a key factor lending support to the EUR/JPY cross. It is worth recalling that Japanese Finance Minister Shunichi Suzuki said earlier this week that they will watch the forex market with a sense of urgency and would respond appropriately if the currency moves became excessive. The warning was reiterated by Japan's top currency diplomat Masato Kanda, though fails to attract any meaningful buying around the JPY as investors seem convinced that BoJ's negative interest-rate policy will remain in place at least until next year.
Moreover, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures. In contrast, the European Central Bank (ECB) President Christine Lagarde cemented market expectations for a ninth consecutive lift-off in July. Speaking at the Sintra central banking event in Portugal, Lagarde said that inflation in the Eurozone is too high and is set to remain so for too long. This, in turn, lifted bets for more rate hikes from the ECB this year, which, in turn, is seen acting as a tailwind for the shared currency and supports prospects for a further near-term appreciating move for the EUR/JPY cross.
That said, the Relative Strength Index (RSI) on the daily chart remains in the overbought territory and makes it prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the EUR/JPY cross is to the upside. Hence, any meaningful corrective decline might still be seen as an opportunity for bulls and is more likely to remain limited.
Technical levels to watch