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After the Fed’s snoozer overnight, market attentions will now turn to the European Central Bank’s (ECB) and Bank of Japan’s (BoJ) respective policy decisions:

• Thursday, July 27^th = European Central Bank (ECB)
• Friday, July 28^th = Bank of Japan (BoJ)

Here are the market expectations leading up to these key policy decisions:

• ECB to raise its rates by a further 25-basis points (bps) today, with an 80% chance being accorded for another 25-bps hike by end-2023.
• BoJ unlikely to adjust its interest rates this Friday, while keeping its benchmark policy rate unchanged at minus 0.10% through year end.
   

Any material changes to the above scenarios are set to rock EURJPY

At the time of writing, EURJPY is testing its 21-day simple moving average (SMA) as immediate resistance.

EURJPY may well climb to new levels not seen since mid-2008 if:

• the ECB stresses the need for yet another rate hike after July, and
• the BoJ sticks to its ultra-dovish policy stance.

In that case, euro bulls must first overcome the following notable resistance levels:

• 156.84: September 2008 cycle high
• 158: psychologically-important level that has resisted EURJPY twice since late-June 2023.

If the above resistance levels can be conquered, the euro may then make a run towards the psychologically-important 160 level against the Japanese Yen.

On the other hand, EURJPY could be dragged lower if traders are met with:

• an ECB that’s dampening expectations for a post-July rate hike, citing the already weakening momentum in the Eurozone economy, along with
• a BoJ that’s warming up towards eventually tweaking its policy settings.

In such a scenario, EURJPY may test immediate support at its:

• 50-day SMA around 153.8
• 153.411: previous cycle low
• 152 region: where resides the long-term 76.4% Fibonacci level from this FX pair’s July 2008 – July 2021 downtrend.

From a technical perspective, EURJPY may have formed a double top at 158.00.

But further confirmation is needed!

Should that 153.411 neckline be broken, where also lies the 50-day SMA, then EURJPY may carve a path towards the 151.615 – 152.00 region.

At the time of writing, the options markets are the most bearish since the 2020 pandemic on EUR’s prospects against JPY over the next one-week period.

Bloomberg’s FX model also points to a 72.5% chance for EURJPY to trade within the 152.16 – 159.62 range between now and August 3^rd.

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