EUR/JPY Extends Rally as ECB Hike Buzz Tests Yen Risks

The EUR/JPY currency pair continues its upward trend for the third consecutive day, setting up to end the week on a strong note. Despite the European Central Bank's (ECB) hawkish forward guidance, which suggested a potential rate hike in September, the Euro has not yet capitalized on this news. According to Bloomberg, ECB officials are preparing to raise interest rates next month, but ECB President Christine Lagarde emphasized that the central bank will remain data-dependent and avoid pre-committing to an interest rate path.

Lagarde also stated that inflation risks are skewed towards the upside while growth is tilted downwards, and that monetary policy will be set to ensure a return to the 2% inflation goal in the medium term. Meanwhile, the Japanese Yen has weakened less than expected against the Euro, as investors remain cautious about potential Bank of Japan (BoJ) intervention in foreign exchange markets.

On Friday, EUR/JPY traders will be watching closely for updates on Japanese inflation data, including the National CPI excluding Fresh Food, which is expected to rise from 1.4% to 1.6% YoY. Additionally, Jibun Bank Flash PMIs and HCOB Flash PMIs for Germany, France, and the European Union (EU) will be released.

The EUR/JPY daily chart shows a clear trendline break since last week, shifting the market structure from sideways trading to an uptrend. Technical analysis suggests that prices need to clear 187.56, the April 30 high, for a bullish continuation, with potential targets above at 188.00 and 190.00.