EUR/JPY follows trend lower ahead of ECB

EUR/JPY extended its recent fall on Wednesday as the key currency pair dropped in anticipation of Thursday’s monetary policy decision and press conference from the European Central Bank (ECB). Major clues that traders will be looking and listening for will be if and when the ECB may begin to gradually taper its extensive bond purchasing program, as well as whether quantitative easing may be extended beyond the currently planned end date in March of 2017.

EUR/JPY’s drop on Wednesday was not only due to ECB-driven pressure on the euro, but also by a surge in the safe-haven Japanese yen, which regained some strength amid financial markets that remain buoyant but have become increasingly wary ahead of major upcoming risk events.

For the past two weeks, EUR/JPY has retreated sharply from a key descending trend line extending back to the late January highs. This drop corresponds with the long-term trend for the currency pair, although the past few months since June’s Brexit-driven plunge to multi-year lows has essentially seen a sideways trading range.

As key risk events on the horizon, including Thursday’s ECB statement and conference, continue to impact both the euro and yen, the currency pair could quickly find further reason to extend its long-prevailing downtrend. With any further retreat from the noted downtrend resistance line, the next major bearish target is at the 112.00 support level, followed further to the downside by the 111.00 support level.

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