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With the latest European Central Bank’s latest monetary policy statement coming soon, we’re checking out this simple technical setup on EUR/JPY ahead of what could be a very volatile session for the euro.

Before moving on, ICYMI, today’s Daily U.S. Session Watchlist looked at CAD/CHF as oil volatility rises, so be sure to check that out to see if there is still a potential play!

Intermarket Update:

Equity Markets Bond Yields Commodities & Crypto
DAX: 15422.50 +1.36%
FTSE: 6998.28 +1.70%
S&P 500: 4358.66 +0.82%
NASDAQ: 14631.95 +0.92%
US 10-YR: 1.292% +0.083
Bund 10-YR: -0.39% +0.001
UK 10-YR: 0.607% +0.002
JPN 10-YR: 0.015% +0.009
Oil: 70.22 +4.49%
Gold: 1,804.20 -0.39%
Bitcoin: $31,608.50 +6.13%
Ethereum: $1,938.71 +8.03%

Fresh Market Headlines & Economic Data:

Stocks rally for a second day, Dow jumps more than 200 points to recoup Monday’s losses

U.S. mortgage applications decline in latest week as rates steadily rise -MBA

Oil extends gains despite rise in U.S. inventories

Ethereum price rises after Elon Musk confirms he owns the cryptocurrency

Tesla will ‘most likely’ restart accepting bitcoin as payments, says Musk

ECB set to tweak guidance to reflect its new 2% inflation target

Upcoming Potential Catalysts on the Economic Calendar

Australia Goods Trade Balance, Business Confidence at 1:30 am GMT (July 23)
France Business Confidence at 6:45 am GMT (July 23)
Bank of England Broadbent speech at 8:30 am GMT (July 23)
U.K. CBI Industrial Trends Orders at 10:00 am GMT (July 23)
European Central Bank Monetary Policy Statement at 11:45 am GMT (July 23)

What to Watch: EUR/JPY

EUR/JPY 1-Hour Forex Chart
EUR/JPY 1-Hour Forex Chart

EUR/JPY is back at a major area of interest on the one-hour chart above, the 130.00 major psychological level that has recently been an area of consolidation followed by directional momentum. Could we see the same reaction to 130.00 once again?

Check out our new FX Market Snapshot tool to quickly see what’s happening in the forex market today.

Well, when you’ve got the European Central Bank giving their latest monetary policy statement, the odds are pretty good that we’ll at least see a big pick up in volatility around the release time.

Expectations for this event are that forward guidance will be tweaked and that Lagarde may clarify that we could see regular asset purchases after that the end of the PEPP next year. Of course, if we get a signal that monetary policy will tighten due to rising inflation conditions this year, that could be the spark for an outsized intraday move.

If that surprise scenario plays out, then an upside break of the 130.00 consolidation area is a potential reaction, and a simple entry setup could be to go long on the break.

And vice versa, if the ECB gives a surprisingly dovish outlook on economic growth or inflation (likely on the back of a recent spike in covid-19 cases), then we’d be watching out for a break down in EUR/JPY from the 130.00 handle.

With those scenarios as possibilities or even scenarios we don’t see, the odds are pretty good that volatility may explode and that a news straddle entry strategy would be a simple but effective way to enter a trade.

And keep in mind that quick moves do tend to get faded quickly after this event, so consider taking profits quickly unless we get a major, game-changing surprise like the highly improbable scenario of an actual interest rate hike.