EUR/JPY resumes rally and tests last week highs ahead of BoJ

• Japanese yen drops across the board on Monday, BoJ meeting eyed. 
• Euro gains momentum during the American session, add support to EUR/JPY. 

The EUR/JPY pair bottomed hours ago at 120.70, the lowest since Thursday and then bounced to the upside, rising more than 50 pips in a few minutes. It erased two days of losses in a few hours, by climbing back to the 121.30 area. 

As of writing, it is trading at 121.25/30, at the top and near last week highs. A consolidation on top would clear the way to more gains for the Euro. The next resistance might be seen at 121.50. While on the downside, immediate support is located at 121.20, followed by 120.80.

The yen weakened on Tuesday ahead of the Bank of Japan (BoJ) meeting. No change is expected.  “Our forecast assumes the BoJ will not make any major changes to the current stance of policy for the foreseeable future. One risk to this outlook is a scheduled hike in the consumption tax this October, which could cause some economic disruptions. Should policy need to be eased further, the BoJ could push its policy rate deeper into negative territory, apply negative rates to a broad set of bank reserve balances or move its 10-year JGB yield target down from its current target of 0%”, wrote Wells Fargo analysts. 

The decline of the yen on Monday took place despite lower sovereign bond yield across the board, ahead of the FOMC meeting and amid a no-deal Brexit fear. The pound dropped sharply, boosting the EUR/GBP that added to EUR/JPY strength.