EUR/JPY Price Forecast: Faces selling pressure amid caution ahead of ECB policy meeting

• EUR/JPY slides to near 161.60 as the Euro faces selling pressure ahead of the ECB policy meeting on Thursday.
• The ECB is almost certain to cut its Deposit Facility rate by 25 bps to 2.75%.
• Growing bets towards more interest rate hikes from the BoJ this year have boosted the Japanese Yen.

The EUR/JPY pair slumps to near two-day low of 161.60 in Wednesday’s European session. The cross faces a sharp selling pressure as the Euro (EUR) underperforms its major peers, except antipodeans, as market participants are confident that the European Central Bank (ECB) will cut its Deposit Rate by 25 basis points (bps) to 2.75%. This would be the fourth straight interest rate cut by the ECB in a row.

Investors have also priced in three more interest rate cuts of 25 bps in the upcoming three meetings amid fears that the imposition of tariffs by the United States (US) on the Eurozone would weaken its economic outlook. A majority of ECB officials are also comfortable with market expectations for four interest rate cuts this year due to deepening risks of inflation undershooting the central bank’s target of 2%. The completion of four interest rate cuts would push the Deposit rate lower to 2%.

Few ECB officials have considered 2% a neutral rate, which neither stimulates nor weighs on economic growth.

Meanwhile, the Japanese Yen (JPY) performs strongly across the board amid growing speculation that the Bank of Japan (BoJ) will raise interest rates further this year on hopes of higher wage growth outlook.

EUR/JPY trades in a Descending Triangle chart pattern on a daily timeframe, which indicates indecisiveness among market participants. The horizontal border of the chart pattern is plotted from the December 13 low of 159.65, while the downward-sloping border is placed from the December 30 high of 164.90.

The 20-day Exponential Moving Average (EMA) appears to be sticky to the asset’s price near 162.17, suggesting a sideways trend.

The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a sharp volatility contraction.

A fresh upside move toward the December 30 high of 164.90 and the November 6 high of 166.10 would appear if the asset breaks decisively above the January 24 high of 164.08.

On the flip side, a downside move below the January 16 low of 159.74 would expose the asset to the December 11 low of 158.65, followed by the December 9 low of 157.87.

EUR/JPY daily chart