EUR/JPY Price Analysis: Pulls back from multi-year peak, once again fails near 158.00 mark

• EUR/JPY meets with some supply on Monday and is pressured by a modest JPY strength.
• The occurrence of a negative RSI divergence on the daily chart prompts technical selling.
• Bulls need to wait for a sustained strength above the 158.00 mark before placing fresh bets.

The EUR/JPY cross edges lower on the first day of a new week and reverses a part of Friday's strong move up to the 158.00 mark, or its highest level since September 2008. Spot prices remain on the defensive through the Asian session and currently trade around the 157.30-157.35 region, down just over 0.25% for the day.

The Japanese Yen (JPY) strengthens a bit in reaction to comments by Japan's top currency diplomat Masato Kanda, saying that the recent inflation and wage rises were overshooting expectations. This revives hopes that the Bank of Japan (BoJ) might tweak its Yield Curve Control (YCC) policy later this week, which, along with a softer risk tone, underpins the safe-haven JPY and exerts some pressure on the EUR/JPY cross.

The shared currency, on the other hand, is undermined by the fact that European Central Bank (ECB) officials recently delivered mixed signals regarding the next policy move after the anticipated 25 bps lift-off this week. This is seen as another factor weighing on the EUR/JPY cross, though the downside seems limited ahead of the key central bank event risks - the ECB and BoJ decisions on Thursday and Friday, respectively.

From a technical perspective, Friday's sustained break through the 157.00 mark was seen as a fresh trigger for bullish traders. That said, failure near the 158.00 rond figure, which has been acting as a stiff resistance since late June, along with the occurrence of a negative Relative Strength Index (RSI) divergence on the daily chart, warrant cation before positioning for any further near-term appreciating move for the EUR/JPY cross.

This makes it prudent to wait for some follow-through buying and acceptance above the 158.00 mark before placing fresh bullish bets around the EUR/JPY cross. Spot prices might then surpass an intermediate hurdle near the 158.30-158.35 region and aim to reclaim the 159.00 round figure before eventually climbing to the next relevant resistance near the 159.40-159.50 area.

On the flip side, the 157.00 resistance breakpoint now seems to protect the immediate downside ahead of the 156.25 region and the 156.00 handle. This is followed by support near the 155.70 area, below which the EUR/JPY cross could accelerate the fall towards challenging the 155.00 psychological mark. The corrective decline could get extended further towards the 154.00 mark en route to the monthly low around the 153.35 region.

EUR/JPY 4-hour chart

Key levels to watch