Near-Term Outlook for the EUR/JPY Pair 

EUR/JPY from an Economic Perspective

The Bank of Japan is poised to continue raising interest rates. Monetary policymakers at the Bank of Japan announced that they will continue to raise the key interest rate as part of a gradual process to curb the effects of the massive monetary stimulus the bank has implemented.

After raising interest rates for the fifth time in the current cycle in June, bank officials noted that core consumer inflation is approaching the bank’s 2% price stability target.

On the other hand, the euro’s gains were limited due to low inflation in the eurozone and comments by European Central Bank President Christine Lagarde that leaned toward monetary easing, which dampened expectations of a third interest rate hike this year.

June data showed headline inflation slowing to 2.8% from 3.2% in May, which was below expectations, while core inflation fell to 2.4%, also below expectations.

At the ECB’s Sintra Forum, Lagarde noted the reduced risks to inflation and growth in the eurozone, citing lower energy price pressures resulting from the peace agreement between the United States and Iran.

However, markets still expect a second interest rate hike, most likely in September.

EUR/JPY from a Technical Perspective

The EUR/JPY pair is attempting to pull back under the influence of a bearish MACD divergence, as the pair trades near the downtrend levels on the 2-hour chart.

The pair is poised for some declines, targeting 184.70 as an initial target and then the 183.50 support level as a secondary target.

This scenario would fail if the pair breaks above the 185.90 level on a 4-hour candle.