EURJPY Caught Between ECB/BOJ Outlook

Dovish ECB ViewEURJPY remains under pressure today with the market back below the 158.50 level after a failed attempted breakout last week. The pair has been capped by the level since early December as traders continue to grapple with shifting ECB/BOJ views. Expectations that the ECB might cut rates as early as April have been a key theme in markets over recent months with EURJPY shedding almost 7% from last year’s highs in Q4. With the market moving to fully price in a cut by April, and pricing for March sitting at around 50%, the near-term outlook turned firmly bearish for the pair.BOJ PushbackAlongside dovish ECB expectations, traders had been increasingly projecting a switch in BOJ policy towards monetary policy normalisation. However, the BOJ has continued to push back against those calling for imminent BOJ tightening, allowing JPY to weaken again. As such EURJPY has recovered off the December lows and is now looking to break to the topside if the market can establish a clearer directional view.US CPI in FocusLooking ahead this week, with little in the way of tier one JPY or EUR data, focus is likely to land on USD. Thursday’s CPI release in the US will be the main market event and holds the potential to drive moves across FX markets if we see any fresh volatility in USD. A weaker JPY should help drive EUR higher if we see USD rising on the back of the release.Technical ViewsEURJPYFor now, EURJPY remains capped by the 159.35 level as well as the bull channel highs. This area has the potential to form the right shoulder of a large head and shoulders pattern, suggesting a broader move lower in coming months. To the downside 155.40 and 152.13 will be the key levels to watch. However, if price breaks above the 159.35 level, 162.29 comes into view as the next target for bulls.