Focus Shifts to EUR/JPY Pair Ahead of BOJ and ECB Decisions

The EUR/JPY cross is an important
one because of the size of the underlying economies. The combined EU economy is
the second largest in the world after the US while Japan is the third largest
independent economy after the US and China. This week, investors will focus on
the two economies as the respective central banks make their interest rates
decision.

The Bank of Japan (BOJ) will deliver
its first interest rates decision of the year tomorrow. As usual, the bank is
expected to leave interest rates unchanged in this meeting. This is because the
country’s ultralow interest rates have not spurred inflation as the BOJ would
want. Data released last week showed inflation rate at below 1%.

This decision will be followed by
another potential rate hike by the European Central Bank (ECB). This will be an
important rate hike decision because it may likely provide a forward guidance
about the future of interest rates. Investors believe that the ECB will hike in
October this year. However, this view is clouded because of a report by IMF
yesterday that lowered the global guidance for this year.

The EUR/JPY pair has continued to
decline, reaching a low of 124.20. On the long-term however, the pair has been
largely unmoved. The price has moved below the three-week and the six-week low.
The RSI has as well moved below the oversold level. Therefore, there is a
likelihood that the pair may continue moving lower to the 124 level.

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