This is the second consecutive day that the EUR/JPY pair is attempting to gain positive momentum, but the potential for growth remains limited.
The fundamental backdrop calls for caution before confirming that the pair has formed a short-term bottom and is ready for a significant recovery from the monthly low reached on Monday. According to data published on Monday, Japan's economy grew slightly slower than forecasted in the second quarter. Meanwhile, stable stock market performance is undermining the Japanese yen, offering some support for EUR/JPY's upward movement. However, diverging monetary policy expectations between the European Central Bank (ECB) and the Bank of Japan (BoJ) may deter traders from aggressive buying, thus limiting the pair's rise.
At the ECB's September meeting, scheduled for Thursday, the central bank is expected to cut interest rates again, following a drop in inflation in the Eurozone, which fell to its lowest level in three years in August. Meanwhile, markets are factoring in the possibility of another rate hike by the Bank of Japan by the end of the year. Therefore, it would be prudent to prepare for further growth in the pair while waiting for stronger global demand before confirming that EUR/JPY has reached a bottom.
Nevertheless, this fundamental backdrop favors the bears, suggesting that any subsequent upward movement could be viewed as a selling opportunity and may quickly lose steam for buyers.
From a technical standpoint, oscillators on the daily chart remain in negative territory. They have not yet entered oversold levels. Therefore, the fundamental outlook is supported by technical analysis, and the path of least resistance for the pair still points downward.
