EUR/JPY Price Analysis: Consolidates just below multi-year peak, bullish potential intact

• EUR/JPY is seen consolidating its recent strong gains to the highest level since September 2008.
• Overbought RSI on the daily chart holds back bulls from placing fresh bets and caps the upside.
• Weakness below the daily swing low could pave the way for some meaningful corrective decline.

The EUR/JPY cross extends its consolidative price move for the second straight day and seesaws between tepid gains/minor losses through the early part of the European session. Spot price currently trades around the 155.00 mark, just below the highest level since September 2008 touched this Tuesday.

A big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and the European Central Bank (ECB) is seen as a key factor acting as a tailwind for the EUR/JPY cross. Even from a technical perspective, last week's sustained breakout through the 151.00 strong horizontal resistance was seen as a fresh trigger for bullish traders. This, in turn, supports prospects for a further near-term appreciating move.

That said, a generally weaker tone around the equity markets lends some support to the safe-haven Japanese Yen (JPY) and caps the upside for the EUR/JPY cross. Moreover, the Relative Strength Index (RSI) on the daily chart is holding well above the 70 mark, flashing overbought conditions and holding back traders from placing fresh bullish bets, though any meaningful corrective pullback still seems elusive.

Hence, a slide back towards the daily swing low, around the 154.60-154.55 area could be seen as a buying opportunity and remain limited. That said, a sustained break below might prompt some technical selling and accelerate the slide towards the 154.00 round-figure mark. The EUR/JPY cross could eventually drop to the 153.65-153.55 region, which should act as a strong base and a pivotal point for short-term traders.

On the flip side, bulls might now wait for a move beyond the 155.35-155.40 zone, or the multi-year peak, before positioning for any further gains. The EUR/JPY cross might then accelerate the momentum towards the 156.00 round figure en route to the next relevant hurdle near the 156.30-156.40 region. Spot prices might then aim to reclaim the 157.00 mark, though overbought RSI warrants some caution for aggressive bullish traders.

EUR/JPY daily chart

Key levels to watch