FxWirePro: EUR/JPY breaks out of daily cloud, ECB's hawkish guidance bolsters bullish bias

Chart - Courtesy Trading View 

EUR/JPY was trading 0.24% lower on the day at 146.06 at around 05:00 GMT, pares some if the previous session's gains.

The pair, overnight, spiked past cloud top which was capping upside from many sessions, outlook has turned bullish.

The ECB announced a 50 bps rate hike as widely expected, but the Quantitative Tightening (QT) announcement surprised the markets.

The central bank said it will start QT in March 2023 at a €15 billion pace, and will run through Q2 and be set on an ongoing basis. 

The ECB updated its inflation forecasts for 2024 and 2025 to hit 3.4% and 2.3%, respectively and added that rates would still need to rise “significantly further.”

On the data front, Japanese manufacturing activity contracted more than expected in December, preliminary data showed on Friday.

The Flash au Jibun Bank Japan Manufacturing purchasing managers index (PMI) fell to 48.8 from 49 in the prior month, missing expectations for a reading of 49.

While, the Flash au Jibun Bank Japan Services PMI rose to 51.7 from 50.3 in November, boosted largely by increased tourism volumes.

Traders await the release of first readings of December month activity numbers for Germany and the Euro Area for further impetus.

Major Support Levels: 

S1: 145.30 (5-DMA)

S2: 144.53 (21-EMA)

Major Resistance Levels: 

R1: 146.56 (Upper BB)

R2: 148.40 (Oct high)

Summary: EUR/JPY resumes upside after pause in the previous month. Break above cloud has raised scope for more gains. Scope for pair to refresh yearly high above 148.40.