Edges higher to mid 160.00s, remains capped in weekly range

• EUR/JPY draws buyers for the second day in a row, although it remains below the weekly peak.
• The technical setup supports the outlook for a breakout through the weekly trading range.
• A convincing break below the 159.00 level is needed to cancel the short-term positive bias.

The EUR/JPY cross is trading in a positive trend for the second day in a row on Wednesday, although it lacks bullish conviction and remains limited in a known range from earlier this week. Spot prices are currently trading in the mid-160.00s, up nearly 0.25% on the day and supported by a combination of factors.

The common currency is benefiting from the prevailing selling trend in the US dollar (USD), fueled by growing bets for more aggressive policy easing by the Federal Reserve (Fed). Apart from this, the prevailing risk environment is undermining the Japanese Yen (JPY) and acting as a tailwind for the EUR/JPY cross. That said, the divergent policy expectations of the Bank of Japan (BoJ) and the European Central Bank (ECB) keep a lid on any significant appreciation movement in the currency pair.

From a technical perspective, price action within the range could be classified as a bullish consolidation phase on the back of the recent rally over the past two weeks or so. Furthermore, the oscillators on the daily chart have just started to gain positive traction and support prospects for an eventual breakout to the upside. However, bulls must wait for sustained strength and acceptance above the 161.00 mark before placing new bets. The EUR/JPY cross could then accelerate the move to the 161.40-161.45 intermediate resistance en route to the 162.00 round figure.

The next relevant obstacle is fixed near the 162.45-162.50 region, above which the bulls could aim to challenge the monthly peak around the 162.90 area. Some further buying beyond the round figure of 163.00 will negate the negative outlook and shift the short-term bias in favor of bullish traders.

On the other hand, weakness again below the psychological threshold of 160.00 could find support near the 159.60-159.55 region ahead of the round figure of 159.00 or the lower limit of the weekly range. A convincing break below the latter will suggest that the recent uptrend has run out and pull the EUR/JPY cross further towards the 158.20 area. This is closely followed by the round figure of 158.00, below which spot prices could drop into the mid-157.00s en route to the 157.00 threshold.

EUR/JPY 4-hour chart