The EURJPY cross is still set defensively at the 166.00 area as traders increase their bets on the possibility of the Bank of Japan (BoJ) increasing rates on Wednesday. Meanwhile, the Japanese Yen (JPY) persists in a rally.
Investors Await BoJ Meeting
Investors are seeking new impetuses ahead of Wednesday's BoJ monetary policy meeting. The BoJ's increasing rumors that it would hike interest rates and drastically scale back its monthly bond purchases continue to support the JPY against the EUR. Likewise, traders might unwind their carry positions before the BoJ announces its rate decision, which could boost the JPY.
Before the Bank of Japan's policy announcement, traders may unwind their carry trades, which might benefit the JPY. On Friday, Masato Kanda, Japan's chief currency diplomat, told the G20 that foreign exchange (FX) volatility badly impacts the country's economy. According to Reuters, Kanda highlighted the need to monitor the economy closely and put the necessary measures into place while mentioning a growing chance of a soft landing.
Meanwhile, rising geopolitical risks in the Middle East may boost safe-haven flows, improving the JPY. Israel has vowed to respond after accusing Hezbollah of carrying out the strike on a football field that claimed the lives of at least 12 people, including children. However, as reported by the BBC on Sunday, Hezbollah disputes any involvement in the attack.
Eurozone CPI & GDP Are In Focus
Nevertheless, investors believe that rate cuts from the European Central Bank (ECB) are imminent, which puts some selling pressure on the common currency. According to ECB President Christine Lagarde, more information is required to bolster the ECB's confidence and validate the continuous deflation trend. This week's important economic data for the Eurozone may explain how interest rates will move this year.
On Wednesday, the German Consumer Price Index (CPI) for July and the preliminary Gross Domestic Product (GDP) for the second quarter (Q2) from Germany and the Eurozone will be made public. In the short run, the Euro could rise, and any indications of faster economic growth or sticky inflation could limit the downside pressure for EURJPY.
EURJPY Forecast Technical Analysis
In the daily chart of EURJPY, the recent price shows massive selling pressure after setting a valid top at the 175.40 level from where the recent recovery has come.
In the volume structure, the buying pressure is still valid as the largest activity level since December 2023 is still below the current price. In that case, investors might expect a bullish rebound after having a valid reversal from the near-term demand zone.
On the other hand, the massive selling pressure took the price below the 100-day Simple Moving Average, which signals a valid bearish reversal. However, investors should closely monitor how the price retraces higher, as an additional bearish rejection from the near-term resistance level could signal a bearish opportunity.
Based on the daily market outlook of EURJPY, the near-term support level is at 164.00, from where a bullish reversal might take the price higher to the 170.00 area.
On the other hand, any immediate bullish reversal with a bearish recovery from the 168.00 to 172.00 area could resume the existing bearish trend, where the main aim is to test the 161.00 high volume level.
