The EUR/JPY pair extended its consolidative move just below 6-month high touched on Monday and remained confined within a narrow trading band ahead of the much awaited ECB decision.
Currently trading around 122.30 region, the cross was seen consolidating Monday's sharp rebound from the vicinity of 200-day SMA, tested in the aftermath of a 'No' vote on the Italian Referendum on Sunday. The cross subsequently surged to the highest level since early June but struggled to gain further traction as investors now cautiously await for this week's key event risk, ECB monetary policy meeting, later during European session.
The outcome of Italian Referendum heightened the need for the central bank to extend or even expand its EUR 80b a month asset purchase program, beyond its scheduled end in March. However, should the central bank hint towards tapering its asset purchase program should boost the shared currency across the board and provide fresh impetus for the pair's strong upward trajectory witnessed since the beginning of last month.
Also read: ECB Preview: between a rock and a hard place
Technical outlook
Omkar Godbole, Analyst and Editor at FXStreet, notes, "The pair failed to take out 123.07 (38.2% of Jul 2008 high - Jul 2012 low) - 123.36 (monthly 100-MA). The cross is overbought as per the daily RSI. The daily MACD suggests the bullish momentum is running out of steam. Thus, sideways to negative action in the range of 120.50-123.00 is likely in the short-run. On the higher side, a break above 123.36 would open doors for 125.00 levels. On the lower side, only a dip below 120.00 levels would suggest the rally from the June low of 109.42 has ended."
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