• EUR/JPY pulls back from 12-week highs at 186.67 but remains above previous highs at 186.32.
• The Yen keeps struggling amid the interest rate gap between the BoJ and the rest of the major central banks.
• The Euro is correcting lower within the broader bullish trend.

The Euro (EUR) is giving away previous gains against the Japanese Yen (JPY) on Thursday, as investors position for the European Central Bank's (ECB) monetary policy decision. The EUR/JPY pair, however, remains positive in daily charts, trading at the highest levels in nearly three months, with dips contained above previous highs at the 186.30 area.

Markets are focusing on the ECB's monetary policy decision, due later on the day. The bank is widely expected to leave its benchmark Rate on Deposit Facility at the current 2.25%, and leave the door open for further monetary tightening, as the recent rally in Oil prices points to higher inflationary pressures in the near-term.

The Yen, on the other hand, remains broadly offered with the wide divergence between the Bank of Japan and the rest of the major central banks’ monetary policies acting as headwinds for JPY rallies. Bloomberg reported on Wednesday that the BoJ is ready to accelerate its monetary normalisation cycle, although investors have remained sceptical.

Technical Analysis: Correcting lower from overbought levels

EUR/JPY trades at 186.44 with the bullish bias intact as the pair corrects lower after reaching overbought territory. The 4-hour Relative Strength Index (14) at 65 sits within bullish levels, while the Moving Average Convergence Divergence (MACD) indicator remains slightly positive, hinting that upside momentum is still constructive.

Bearish attempts remain contained at the mid-June highs in the 186.30 area, closing the path towards last week's highs at the 186.00 area and Tuesday's lows at 185.78. On the topside, initial resistance appears at the intraday highs of 186.65, which is also the 161.8% Fibonacci extension of the June 21-22 rally. Further up, the area between the 261.8% Fibonacci extension of the mentioned cycle at 187.44 and the April 30 high, at 187.55, emerges as the next target.

(The technical analysis of this story was written with the help of an AI tool. Know more.)