EUR/JPY retreats from weekly top, eyes 161.00 mark amid reviving JPY demand

• EUR/JPY attracts some sellers on Friday and reverses a part of its recent gains to the weekly top.
• A combination of factors revives the JPY demand and exerts downward pressure on the cross. 
• Dovish ECB bets contribute to the fall, though the BoJ rate hike uncertainty might limit losses.

The EUR/JPY cross meets with some supply during the Asian session on Friday and for now, seems to have snapped a two-day winning streak to the weekly peak, around mid-162.00s touched the previous day. The downfall is sponsored by the emergence of some buying around the Japanese Yen (JPY) and drags spot prices to the 161.20 area, or a fresh daily low in the last hour.

Asahi Noguchi, a dovish Bank of Japan (BoJ) board member said on Thursday that the central bank has scope to raise interest rates further but must move cautiously and slowly to avoid hurting the economy. This comes on top of a further escalation of geopolitical tensions in the Middle East and the risk of a full-out war, which drives some flows towards the safe-haven JPY and turns out to be a key factor weighing on the EUR/JPY cross. 

The shared currency, on the other hand, remains depressed amid bets that the European Central Bank (ECB) will cut rates again in October on the back of easing inflationary pressures and economic slowdown. In fact, data released earlier this week showed that the Eurozone inflation fell to 1.8% in September, below the ECB's 2% target. This contributes to the offered tone surrounding the EUR/JPY cross and supports prospects for further losses. 

That said, the uncertainty over future interest rate hikes by the BoJ might hold back the JPY bulls from placing aggressive bets and help limit the downside for the currency pair. Japan's new Prime Minister Shigeru Ishiba said earlier this week that Japan is not in an environment for an additional rate increase. Moreover, Japan's Economy Minister Ryosei Akazawa stated that the PM and the BoJ both agree that overcoming deflation is Japan's highest priority.

The aforementioned mixed fundamental backdrop warrants some caution for bearish traders and makes it prudent to wait for strong follow-through selling before positioning for any further depreciating move. From a technical perspective, the formation of a 'Death Cross' on the daily chart – the 50-day Simple Moving Average (SMA) crossing below the 200-day SMA – suggests that the path of least resistance for the EUR/JPY cross remains to the downside.