EUR/JPY Price Analysis: Volatility contracts ahead of ECB policy

The EUR/JPY pair has struggled to surpass the critical resistance of 141.75 in the early Tokyo session. The cross is expected to remain sideways till the announcement of the interest rate decision by the European Central Bank (ECB).

On Wednesday, the preliminary headline Eurozone Harmonized Index of Consumer Prices (HICP) softened to 8.5% from the consensus of 9.0% due to easing energy prices. However, the ECB is expected to continue to remain hawkish as the road to price stability is far from over.

Analysts at Danske Bank expect ECB President Christine Lagarde to continue to sound very hawkish and signal that further rate hikes are coming, particularly giving guidance for another 50bps hike in March.

EUR/JPY is auctioning near the downward-sloping trendline of the Descending Triangle chart pattern on an hourly scale, which indicates a contraction in volatility. The downward-sloping trendline of the chart pattern is plotted from January 25 high at 142.29 while the horizontal support is placed from January 25 low at 140.75.

The 20-period Exponential Moving Average (EMA) at 141.40 is overlapping the EUR/JPY price, which indicates a consolidation ahead.

Also, the Relative Strength Index (RSI) (14) is still oscillating in the 40.00-60.00 range, which signifies an absence of a potential trigger.

 For an upside move, the cross needs to surpass January 25 high at 142.29, which will drive the asset toward January 11 high at 142.61 followed by October 24 low at 143.72.

On the flip side, a break below January 25 low around 140.76 will be a breakdown of the chart pattern, which will drag the asset towards January 5 low at 140.14. A slippage below the same will expose the cross for more downside toward January 17 high at 139.62.

EUR/JPY hourly chart