EUR/JPY Price Forecast: Holds above 176.00 despite bearish bias

AUD/JPY continued to trade in positive territory around 110.75 early Tuesday. The Reserve Bank of Australia (RBA) released a hawkish statement, providing support to the Australian Dollar (AUD) against the Japanese Yen (JPY). Australia's September inflation data will be a key indicator, particularly on Wednesday. Bank of Japan (BoJ) policy decisions are expected to take center stage later in the week.

The RBA Assistant Governor Sarah Hunter hinted that further rate hikes are likely in the near future, with nearly a 62% chance of an interest rate increase to 4.85% at the next RBA meeting, according to the ASX RBA Rate Tracker. Traders are closely watching the Australian Consumer Price Index (CPI) report for additional support.

Economists project an annual CPI increase of 4.2% for September, with a monthly increase of 0.7% expected. The BoJ is anticipated to maintain interest rates at 1.25% during the October policy meeting on Friday, with analysts suggesting that the bank may hold off on any explicit hints regarding future rate hikes, as it attempts to balance preventing inflation overshoot and avoiding further market disruption.

Analysts at Brown Brothers Harriman noted that the BoJ is expected to keep rates steady at 1.25% and assess the impact of the September 25 basis point hike before tightening again. The BoJ Governor Kazuo Ueda's cautious tone in September, warning that rapid rate hikes could unsettle asset prices, was echoed, as he stressed that it could take time to confirm 2% inflation is entrenched.

Despite this, BBH pointed out that firm underlying inflation could support a more hawkish outlook, potentially lifting BoJ rate expectations and favoring the Japanese Yen. The BoJ's Himino scored 8.2/10 on FXS Speechtracker, aligning with the historic average, but the hawkish tone in the speech marked a shift. Strong demand for AI-related investments, coupled with accommodative financial conditions, low real rates, and rapid bank lending, supported the case for inflation convergence towards the 2% target, reinforcing a bullish bias for the Yen.

However, technical analysis reveals that AUD/JPY is trading below the 100-day simple moving average (SMA) and has recovered slightly above the Bollinger Bands' 20-period middle band, indicating some near-term stabilization. The Relative Strength Index (14) at 52.25 suggests improving momentum, yet the overall bearish structure defined by the dominant SMA overhead remains intact.

The immediate support level is observed at the Bollinger middle band around 110.20, followed by the psychological 110.00 level. A deeper cushion is located at the lower limit of the Bollinger band near 109.20, where sellers may hesitate if the pair resumes its decline. On the upside, the immediate resistance level is at the upper Bollinger band near 111.20, with a potential rally to the August 18 high of 113.61 if the pair sustains trades above this level.