EUR/JPY rises to cycle highs as the BoJ will stick to its dovish stance

• EUR/JPY rose more than 1% on Friday to its highest since early July.
• Reports indicate that the BoJ will stick to its YCC following the Japanese CPI.
• ECB tightening expectations remain steady.

The EUR/JPY gained significant momentum at the end of the week amid a broad-based JPY weakness. Japanese inflation is seeing some signs of deceleration in June and reports of the Bank of Japan sticking to its dovish monetary policy in next week's meeting makes the Yen lose interest.

Headline CPI decreased in Japan in June. All eyes on BoJ and ECB decisions next week 

June inflation data from Japan saw the National Consumer Price Index (CPI) dropping to 3.3% vs the 3.5% YoY expected, while the Core measure came in at 4.2% YoY, just as expected. That being said, the JPY is losing ground amid the speculations that the BoJ will maintain its dovish stance in next week’s meeting. According to Reuters, the bank considers that inflation is increasing but is not confident if the increase is sustainable, putting a hold on a potential policy pivot.

On the other hand, the European Central Bank's (ECB) tightening expectations remain steady despite German yields decreasing. For next week’s meeting, a 25 basis point (bps) hike is largely priced in, while the probability of a similar hike in September is near 60%. In the meantime, the 2,5 and 10-year yields display more than 1% declines and fell to 3.23%,2.56% and 2.42%, respectively, limiting the EUR’s upside potential.

EUR/JPY levels to watch

The daily chart indicates that the bulls have taken the upper hand following Friday’s gains. The cross trades above the 20,100 and 200-day Simple Moving Averages (SMA) while indicators are recovering. The Relative Strength Index (RSI) is in positive territory, leaping towards overbought territory, while the Moving Average Convergence Divergence (MACD) prints lower red bars.

Resistance levels: 158.00, 158.50, 159.00. 
Support level: 156.38 (20-day SMA), 156.00, 155.50.

EUR/JPY Daily chart