EUR/JPY rallies and approaches the 138.00 mark post dovish BoJ, hot Germany’s inflation

• The EUR/JPY is about to close in April with gains of 2.25% in the month.
• An upbeat market mood weighed on the JPY, alongside a “dovish” Bank of Japan (BoJ).
• The BoJ would remain dovish, despite further JPY weakness and looks forward to overshooting the 2% inflation target.
• EUR/JPY Price Forecast: Remains bullish biased, about to form a morning-star pattern.

The shared currency is rallying against the Japanese yen after the Bank of Japan (BoJ) committed to its dovish stance, despite expressions of the Japanese Minister of Finance that FX volatility is undesirable and calling recent moves “extremely worrying.” At 137.68, the EUR/JPY is up 1.55% in the day, up almost 200-pips in the trading session.

Global equities remain trading with gains after China’s recent Covid-19 outbreak seems to be controlled. The Ukraine-Russia tussles have taken the backseat so far, as hostilities would continue amidst Russia’s appetite for victory.

Meanwhile, in the Asian session, the Bank of Japan held rates unchanged and doubled down to the Yield Curve Control (YCC), offering to buy an unlimited amount of 10-year JGBs at a fixed 0.25% rate. The BoJ’s expressed that they will ease policy without hesitations as needed with an eye on pandemic impact.

The BoJ Governor Haruhiko Kuroda, in his press conference, said that it is appropriate for Western central banks to tighten given higher inflation and their relatively quick recovery from the pandemic. Kuroda added that there is nothing wrong with diverging monetary policy between Japan and Western nations.

Also read: Breaking: Bank of Japan keeps policy steady, tweaks forward guidance, yen at fresh session lows, 129.52+

On the Eurozone side, inflation in Germany surprisingly rose to its fastest pace since the early 1990s, as shown by the Consumer Price Index at 7.8% y/y, beating the 7.6% forecasts by analysts.

Elsewhere, the European Central Bank (ECB) Vice-President Luis de Guindos said that he had not seen any signs of wage dynamics, adding that wage increases are quite prudent and are compatible with the ECB’s target. In the meantime, ECB’s Visco expressed that a rate hike in the third quarter could happen, as reported by CNBC.

EUR/JPY Price Forecast: Technical outlook

On Wednesday’s note, I wrote, “As long as the EUR/JPY sits above 134.29,” the EUR/JPY “would stay bullish.” The Bank of Japan helped in fulfilling the aforementioned, being the only bank without tightening monetary policy. The EUR/JPY, on its way north, broke all the resistance levels mentioned on Wednesday’s vote, opening the door for further upside.

With that said, the EUR/JPY’s first resistance would be 138.00. Break above would expose 139, followed by April’s 25 daily high at 139.23, which, once cleared, will push the EUR/JPY towards the YTD high at 140.00.

Key Technical Levels