• EUR/JPY scales higher for the second straight day and climbs to a two-week high on Tuesday.
• The ECB-BoJ policy divergence favours bulls and remains supportive of the ongoing move up.
• Traders now await the ECB decision and the BoJ meeting before placing fresh directional bets.

The EUR/JPY cross builds on the previous day's positive move and gains some follow-through traction for the second successive day on Tuesday. The steady intraday ascent extends through the early part of the European session and lifts spot prices to over a two-week high, around the 150.70-150.75 region in the last hour.

The shared currency continues to draw support from rising bets for a further policy tightening by the European Central Bank (ECB) and is seen as a key factor pushing the EUR/JPY cross higher. In fact, ECB President Christine Lagarde indicated last week that additional interest rate rises were likely as, so far, there was no clear evidence that underlying inflation has peaked. This, along with the recent hawkish remarks by several ECB policymakers, suggests that the central bank has still way to go to raise borrowing costs despite a fall in the headline Eurozone CPI to 6.1% in May.

In contrast, the Bank of Japan (BoJ) is universally expected to stick to its dovish stance to support the economy and ensure that the recent positive signs are sustained. In fact, BoJ Governor Kazuo Ueda has stressed the need to maintain the ultra-loose policy until durable wage growth accompanies the price rises. Moreover, BoJ Deputy Governor Masazumi Wakatabe said on Monday that there are overwhelming cases for the continuation of the ultra-easy monetary policy measures. This, in turn, is seen as another factor providing an additional boost to the EUR/JPY cross.

That said, the prospect of Japanese authorities intervening in the markets to support the domestic currency, along with worries about a global economic slowdown, could lend some support to the safe-haven JPY. Traders might also refrain from placing aggressive bullish bets around the EUR/JPY cross and prefer to wait for this week's key central bank event risks - the ECB decision on Thursday, followed by the BoJ meeting on Friday. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch