EUR/JPY struggles for a firm intraday direction, stuck in range around 157.00 mark

• EUR/JPY oscillates in a narrow trading band through the Asian session on Wednesday.
• A softer risk tone benefits the safe-haven JPY and acts as a headwind for the cross.
• The BoJ-ECB policy divergence helps limit the downside and favours bullish traders.

The EUR/JPY cross struggles to gain any meaningful traction on Wednesday and seesaws between tepid gains/minor losses, around the 157.00 mark through the Asian session. Spot prices, however, remain well within the striking distance of over a two-week peak, near the 157.75 region touched on Tuesday.

A generally softer tone around the equity markets drives some haven flows towards the Japanese Yen (JPY) and turns out to be a key factor acting as a headwind for the EUR/JPY cross. That said, a modest US Dollar (USD) downtick lends some support to the shared currency and helps limit the downside, at least for the time being. The fundamental backdrop, meanwhile, seems tilted slightly in favour of bullish traders and supports prospects for some meaningful near-term appreciating move.

A more dovish stance adopted by the Bank of Japan (BoJ) might continue to undermine the JPY and adds credence to the positive outlook for the EUR/JPY cross. In fact, the BoJ's Summary of Opinions released on Monday revealed that policymakers backed the case for the need to patiently continue with the current monetary easing towards achieving the price stability target. Adding to this, data released on Tuesday showed that real wages in Japan fell for a 15th straight month in June.

It is worth recalling that the BoJ has emphasised that sustainable pay hikes is a prerequisite to consider exiting easy policies and dismantling its massive monetary stimulus. This marks a big divergence in comparison to other major central banks, including the European Central Bank (ECB), and suggests that the path of least resistance for the EUR/JPY cross is to the upside. That said, speculations that the ECB might halt its streak of nine consecutive rate hikes in September seem to cap gains.

This makes it prudent to wait for some follow-through buying beyond the overnight swing high before positioning for the resumption of the recent sharp rally from a multi-week low touched in July. The EUR/JPY cross might then make a fresh attempt to conquer the 158.00 mark, or its highest level since September 2008, and prolong its well-established bullish trend.

Technical levels to watch