EUR/JPY rallies to its highest level since September 2008, 153.00 in sight ahead of ECB

• EUR/JPY scales higher for the fourth straight day and spikes to a fresh multi-year high on Thursday.
• The BoJ’s dovish stance, along with reduced bets for Japan’s intervention, weigh heavily on the JPY.
• Investors now look to the key ECB decision for a fresh impetus ahead of the BoJ meeting on Friday.

The EUR/JPY cross prolongs its weekly uptrend for the fourth successive day on Thursday and rallies to its highest level since September 2008, around the 152.85 region heading into the European session.

The Japanese Yen (JPY) continues to be undermined by a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks. In fact, several BoJ officials, particularly Governor Kazuo Ueda, have signalled to stick to the ultra-loose policy settings, including the yield curve control policy, to support the economy and ensure that the recent positive signs are sustained. Apart from this, reduced bets for an intervention by the Japanese government, to stabilize the domestic currency, exert additional downward pressure on the JPY and provide a goodish lift to the EUR/JPY cross.

Apart from this, the strong intraday move up could further be attributed to some repositioning trade ahead of the European Central Bank (ECB) event risk. The ECB is scheduled to announce its policy decision later this Thursday and is all but certain to hike interest rates by 25 bps, to their highest level in 22 years. The central bank is also expected to leave the door open for further tightening to combat high inflation, which, at 6.1% in May, is still more than three times the 2% target. This contributes to the shared currency's relative outperformance and remains supportive of the EUR/JPY pair's sharp rise to a multi-year peak.

The positive momentum could further be attributed to some follow-through technical buying following this week's breakout and acceptance above the 151.00 strong horizontal resistance. That said, the Relative Strength Index (RSI) on the daily chart is already flashing slightly overbought conditions, making it prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets around the EUR/JPY cross. Traders might also prefer to wait on the sidelines ahead of the key central bank event risks - the ECB decision and the BoJ meeting on Friday. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch