EUR/JPY: Bulls fear an uber dovish ECB

•  EUR/JPY reached the three-month resistance line at 118.59 and note that further up,
• All eyes on the European Central Bank, (ECB). 

EUR/JPY has moved up to test a key resistance zone ahead of the European Central Bank on Thursday. The cross sits at 118.80 having travelled between an overnight range of 118.27 and 118.80 the high. 

There wasn’t a lot of economic nor geopolitical news for financial markets to trade-off and instead, the familiar directions played out as speculation over whether the ECB will enact a new QE program on Thursday.

ECB expectations 

Markets expect the ECB to restart its APP programme at a pace of €40bn per month for a year and cut the deposit rate of which the market is fully expecting. "However, the magnitude of the ease is unclear with markets pricing in 15bps in cuts next week. We do think that the OIS curve also embeds some expectation of tiering (see below for more on tiering). This suggests that a policy cut less than 20bps will come as a disappointment for the markets (unless the ECB compensates with other measures)," analysts at TD Securities argued. 

EUR/JPY levels

Analysts at Commerzbank explained that EUR/JPY reached the three-month resistance line at 118.59 and note that further up, the July low, August 6 and 13 highs, 55-day moving average and six-month resistance line come in at 119.58/120.06 and represent good resistance. "Support below the 117.52 August 12 low can be seen at the 116.58/115.87 recent lows."