EUR/JPY trades in cycle highs following BoJ decision

• EUR/JPY closes a 300-pips winning week, trading in the 155.20 area.
• As anticipated, the two-day BOJ meeting concluded without any adjustments made to monetary policy.
• Monetary policy divergence now favours the Euro.

At the end of the week, the EUR/JPY gained over 1%, soaring to a fresh cycle high of 155.20. In that sense, the ultra-dovish stance by the Bank of Japan (BoJ) vs. the hawkish messages from the European Central Bank (ECB) made on Thursday, where Christine Lagarde hinted at more hikes, seems to be giving the Euro traction.

BoJ held its monetary policy unchanged, as expected 

The Bank of Japan (BoJ) recently concluded its two-day meeting without making any policy changes, just as the markets anticipated. The bank acknowledged that inflation expectations have remained relatively stable, but core inflation is slowing due to government measures aimed at reducing energy prices. The bank expects inflation to decelerate further by the middle of the fiscal year of 2023 and emphasized the need to monitor developments in financial and foreign exchange markets. 

In the presser, Governor Ueda mentioned that different data between policy meetings could lead to varying outcomes, but any significant change in the inflation outlook could prompt a policy adjustment.

Looking forward, according to World Interest Rate Possibilities (WIRP), markets foresee a 15% probability of a policy shift in July, where an updated macro forecast will be released, then increasing to 25% in September, 45% in October, and 65% in December.

EUR/JPY Levels to watch

According to the daily chart, the EUR/JPY holds a bullish outlook for the short term as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that the buyers are in control while the pair holds above its main moving averages. However, both indicators suggest intensely overbought conditions as the pair gained more than 2% in the last two days and over 3% in the week, suggesting that a healthy correction may be necessary to consolidate gains.

Upcoming resistance for EUR/JPY is seen at the next round level at 155.30, followed by the 155.55 zone and the 156.00 area. On the other hand, the psychological mark at 153.35 is the immediate support level for the cross which could act as a support in case of a correction. A break below this level could pave the way towards the 153.00 area and then to the 152.00 zone

EUR/JPY Daily chart