EUR/JPY: Eyes 139 beyond a break of 137.78 – July top, rally likely ahead of FOMC?

EUR/JPY has managed to keep its upbeat momentum intact almost over the past one week mainly driven by EUR/USD rebound from thirteen-week lows reached at 1.0866 during the alst week. Optimism surrounding Greek vote on the final reforms package paving way for further bailout talks coupled with correction seen in the US dollar supported the recovery in the EUR/USD, eventually pushing EUR/JPY higher.

Narrowing down to this week, EUR/JPY jumped to fresh two-week highs on Monday above 137 levels after the euro was boosted across the board on USD longs squeeze ahead of FOMC statement while solid German Ifo surveys also underpinned the shred currency. The cross although shrugged of broad yen strength witnessed on Monday which drove USD/JPY to 123 barrier, onre-emrgence of risk-off sentiments after Chinese equties slumped more than 8%, recording the biggest daily drop since 2007. The sell-off was triggered by poor China ecoonmic data which raised concenrs over slowdown in China.

As for today’s trade so far, the cross in EUR/JPY struggles below 137 barrier, although maintains a bid tone, as the euro remains slighlty pressured as the technical talks over Greece’s new loan and rescue program are already underway, while tomorrow’s FOMC meeting also keeps traders on the side lines.Although, the EUR/JPY cross remains supported on yen weakness as the USD/JPY pair remains bouyant as traders resorted to profit-taking after the recent slide.

Technically, on the daily chart,EUR/JPY has given a falling wedge bullish breakout on Monday, rising to fresh two-week highs of 137.10 levels. Although, the cross failed to close above 137 barrier on daily basis, raising concerns over further upward moves ahead. At the moment, EUR/JPY trades at 136.80, recording a 0.10% gain on the day. The cross attempts another run towards 137 handle and is seen bidding up for a breach of 137.10 (July 27 High). The daily RSI hovers around 55 levels and inches slightly higher which suggest more room for upside. MACD also remains on a buy mode, holding comfortably above the signal line. While the pair stands above most major moving averages backing the case for further upside bias.

Looking ahead, in the US, the Federal Reserve (Fed) commences its two day policy meeting later today. A recent free-fall in commodity prices spurred by the biggest daily fall on the Chinese stock markets since 2007, are likely to play a part in the US central banks thinking with respect to its policy stance, and with events in Greece by no means resolved, tomorrow’s decision is unlikely to offer any clues with respect to a September move. Markets are now widely anticipating that FOMC statement may turnout eventless, offering little insights on the Fed’s intentions on monetary policy tightening, which may add to the recent weakness in the greenback, bolstering further upside in the EUR/USD towards 1.1180 levels. The gains in EUR/USD may overshadow the losses witnessed in USD/JPY on a non-event FOMC on Wednesday.