EUR/JPY hammered down to the lowest level since May 6, below mid-165.00s

• EUR/JPY continues losing ground for the fifth straight day and dives to a two-and-half-month low.
• BoJ rate hike bets, along with the risk-off impulse, underpin the JPY and exert heavy pressure.
• The ECB’s dovish outlook weighs on the Euro and contributes to the ongoing depreciating move.

The EUR/JPY cross extends its steep descent witnessed since the early part of this week and plummets to the lowest level since May 6, around the 165.40 region during the Asian session on Thursday.

Expectations that the Bank of Japan (BoJ) could hike interest rates again at its upcoming policy meeting next week force investors to continue unwinding bearish Japanese Yen (JPY) bets. Adding to this, the risk-off impulse – as depicted by the overnight slump in the US equities and a weaker tone across the Asian markets – further benefits the JPY's relative safe-haven status and drags the EUR/JPY cross lower for the fifth straight day. 

Against the backdrop of persistent worries about a slowing Chinese economy, the disappointing release of the global flash PMIs on Wednesday tempered investors' appetite for perceived riskier assets. Meanwhile, the HCOB's preliminary survey indicated a broad-based weakening of economic conditions in the Eurozone, which reaffirms the European Central Bank's (ECB) downbeat view of the Eurozone's economic prospects. 

Moreover, expectations that inflation in the Eurozone would keep falling keep the door for a September interest rate cut by the ECB wide open. This, in turn, undermines the shared currency and contributes to the heavily offered tone surrounding the EUR/JPY cross. Apart from this, the downfall could be attributed to technical selling following the previous day's breakdown through the 100-day Simple Moving Average (SMA). 

That said, the Relative Strength Index (RSI) on the daily chart is already flashing slightly oversold conditions and warrants some caution for aggressive bearish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest bounce before positioning for any further depreciating move heading into the key BoJ meeting. In the meantime, traders will take cues from the release of the German Ifo Business Climate on Thursday.