EUR/JPY erases tepid recovery gains, turns negative

The EUR/JPY cross erased all of its tepid recovery gains to 116.85-90 session high and has now moved back below 116.50 level to currently trade near session low around 116.40 region. 

The pair failed to extract full benefit from better-than-expected German Ifo Business Climate index reading as a wave of risk-aversion seems to have hit US equity markets, which supported the safe-haven appeal of the Japanese Yen and dragged the EUR/JPY cross lower.

In a week that is overloaded with key event risks, markets are likely to witness increased volatility during the course of the current trading week. The most important of all would be BOJ monetary policy statement, the central bank's outlook on economic and inflation conditions, and subsequent press conference. 

Apart from the BOJ decision, investors will also confront the release of Tokyo Core CPI data from Japan. Key releases to watch from this week's Euro-zone economic calendar includes - Euro-zone Q2 prelim GDP and flash CPI print for July.

From technical perspective, the pair seems to be in the process of forming a bearish descending triangular formation on hourly chart with downside horizontal support around 116.20-10 region. A convincing break below this immediate support now seems to turn the pair vulnerable to continue drifting lower in the near-term.

Technical levels to watch

On a sustained break below 116.20-10 support, the pair seems to immediately drift towards 115.50-40 intermediate support before extending its slide further towards a previous strong resistance, now turned important support, near 114.70-50 region.

On the upside, the descending trend-line near 116.80-117.00 region now seems to act as immediate strong resistance. A sustained trade above this immediate strong resistance might negate near-term bearish outlook and set the stage of continuation of the pair's near-term recovery trend towards 50-day SMA resistance near 118.30-35 region.