EUR/JPY Price Analysis: Negative divergence between price action/RSI, to drag prices towards 137.50

• The EUR/JPY braces to gain supported by ECB hawkish comments, amidst a stronger yen,
• ECB’s de Guindos shifted hawkish, saying that a rate hike in July is possible.
• EUR/JPY Price Forecast: Negative divergence in the daily chart to push the pair towards 137.50.

The shared currency clings to gains in the mid-New York session after printing a YTD high at 140.00. At the time of writing, the EUR/JPY is trading at 139.06, up some 0.24%.

The Japanese yen recovered substantial ground versus the commodity currencies, like the Aussie, the Loonie, and the kiwi. In the case of the low-yielder EUR, it failed, which was lifted by hawkish comments of ECB Vice-President Luis de Guindos, who said that a rate hike in July is possible, while he sees no reason why APP could not end by July.

Market’s reaction

The EUR/USD jumped on those remarks but of late retreated those gains and meanders around 1.0850. In the case of the EUR/JPY, the central bank divergence between the ECB and the Bank of Japan (BoJ) favors the former, which is about to finish its QE program, while the latter remains stimulating the Japanese economy. So the EUR/JPY held to gains, though from a technical perspective, it is forming an inverted hammer after an uptrend, which means the price is exhausted and may consolidate or resume lower.

EUR/JPY Price Forecast: Technical outlook

As abovementioned, exhaustion lies in the EUR/JPY pair. If EUR/JPY bulls fail to record a daily close above 139.00, that will exert additional downward pressure on the cross-currency pair. Also, the Relative Strength Index (RSI) in overbought territory (72.34) formed a negative divergence with price action as the EUR/JPY records higher highs, the RSI prints lower highs.

With that said, the EUR/JPY’s first support would be the psychological 138.00 mark. A break would expose February 2018 highs near 137.50, followed by April’s 19 daily low at 136.83.