• EUR/JPY was flat on Friday despite a heavy Eurozone data slate amid a calm end to the week.
  • Focus now turns to next week’s ECB policy decision and flash Eurozone CPI data.

Despite a heavy slate of Eurozone data out during the European morning, it has been a rather tame trading day for EUR/JPY, with the pair swinging within 128.40-128.80ish ranges, well within this week’s 100 pip, 128.20-129.20ish range. Right now, the pair is trading just to the north of the 128.50 mark and if roughly flat on the session. Where last week was a story of safe-haven demand driving FX market flows, thus pushing EUR/USD lower from the 130s, this week was a story of choppiness/indecisiveness, hence the mixed trading conditions for EUR/JPY.

Fed hawkishness in the middle of the week turned the focus in FX markets away from risk appetite back towards central banks and policy divergence. But in a win for the EUR/JPY bears, this did not seem translate into notable upside for the pair. Even if it had, short-term bears may well have used the opportunity to add to short positions in at resistance in the 129.50 area. They may be hoping that US data next week (ISM surveys and the official jobs report) contributes to a further surge in Fed tightening bets, thus knocking stocks lower again and triggering renewed safe-haven yen demand. That way the pair might fall back to test December lows in the 127.50 area.

But central bank policy will also be in the spotlight next week, with the ECB announcing a rate decision on Thursday. The meeting isn’t expected to yield any policy/guidance changes as ECB members have recently reiterated their belief in inflation being transitory and the bank’s current forecasts that it will drop back under 2.0% by the end of year. Wednesday’s Eurozone flash Consumer Price Inflation reading, if it comes in substantially hotter than forecast, may test this narrative. The theme of Eurozone inflation and how the ECB views it will also be an important driver next week.

This article was originally published by Fxstreet.com.Read the original article here.

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