eur/jpy daily ,ECB effect in uptrend,touch resistance

After rallying for 4 consecutive days, the EUR/JPY came under a bit of selling pressure at the start of today's session although it has managed to turn back higher. From a fundamental point of view the earlier weakness made perfect sense as bullish speculators trimmed their positions ahead of the all-important European Central Bank policy decision tomorrow and following the release of some more lacklustre data from the eurozone: the
latest services sector PMI was revised a touch lower, while the first quarter GDP 'growth' was left unrevised at 0.2%. Meanwhile the 0.1% month-over-month fall in the PPI was the latest inflation gauge pointing to lower prices in the single currency bloc.

So, all eyes are on the ECB tomorrow as the central bank moves to fight deflation and spur economic growth. It is expected to trim the benchmark interest rate from 0.25% to 0.1%, impose a negative deposit rate and make more cheap credit available to banks. But all of this may have already been priced in, so anything less will likely be a disappointment. If so, the euro may stage a short-squeeze – and we have seen some indications of that on the EUR/USD pair already.

The EUR/JPY has meanwhile reached a key technical level, namely 139.95/140.00, which was an important support area in the past.  After this 139.95/140.00 level was finally broken last month, one would have expected it to turn into resistance upon retest. Indeed, this is exactly what happened this morning as the cross fell to a low of 139.55 before bouncing back slightly. In addition to resistance, the 100-day moving average also comes into play there, making it a key level. Which direction the EUR/JPY will now head towards depends largely on the outcome of the ECB tomorrow, as well as demand – or lack thereof – for the safe haven yen ahead and after the release of key US employment data on Friday (the ADP and the employment component of the ISM services PMI have shown mixed signals today). But at least the potential is there for a pullback towards support at 139.30 in the very short-term.

But as mentioned, the ECB's likely action tomorrow may have already been priced in, so the euro could potentially squeeze higher as we head towards the end of the week. What's more, the USD/JPY pair seems to have found a bottom after it failed to hold below the 200-day moving average last month (a similar pattern has since been repeated on the EUR/JPY). Consequently, the EUR/JPY could simply follow the USD/JPY higher over the coming days. If so, I wouldn't rule out a move towards the 50-day average, currently at 140.65, or even 141.00 in the very near-term.