EUR/JPY pushes back above 136.50, eyes annual highs at 137.50 as ECB meeting looms

• EUR/JPY rallied back above 136.50 on Wednesday as the yen failed to benefit from lower US yields.
• Bulls are eyeing a breakout towards annual highs in the 137.50 area if Thursday’s ECB meeting proves hawkish.

US yields continued their recent pullback on Wednesday, despite a worrying US Producer Price Inflation report that suggests inflationary pressures don’t look likely to ease any time soon, but this did not offer the battered yen much respite. Despite recent negative newsflow on the Russo-Ukraine front that would typically be seen as euro negative, EUR/JPY advanced on Wednesday to move back above the 136.50 mark.

The pair is now eyeing a retest of earlier weekly highs just above the 137.00 level, a break above which would open the door to a run towards recent multi-year highs in the 137.50 area. Recent commentary from Japanese fiscal and monetary policymakers has suggested that they are more worried about the rate of JPY depreciation in global FX markets, rather than targetting any specific levels.

That has come as a disappointment for those betting that some stronger jawboning might give the yen a near-term boost. EUR/JPY bulls will be hoping that Thursday’s ECB meeting might offer the pair some impetus in the form of, perhaps, a further shift in the bank’s tone regarding how worried it is about inflation, and how quickly it sees itself tightening monetary policy settings.

A break above 137.50 would see EUR/JPY trading at its highest levels since 2015 once again and the bulls would quickly turn their attention to the 140 level and June 2015 highs at 141.00.