EUR/JPY drops to two-week low around mid-164.00s, lacks follow-through selling

• EUR/JPY drifts lower for the second successive day and slides back below the 200-day SMA.
• Intervention fears offer some support to the JPY and exert downward pressure on the cross. 
• Bets for less aggressive ECB rate cuts could limit losses for the shared currency and spot prices.

The EUR/JPY cross remains under some selling pressure for the second successive day and drops to a two-week low, around mid-164.00s during the Asian session on Friday. The downfall is sponsored by a combination of factors and drags spot prices back below a technically significant 200-day Simple Moving Average (SMA).

The Japanese Yen (JPY) continues to draw support from speculations about a possible government intervention to prop up the domestic currency, which, in turn, is seen weighing on the EUR/JPY cross. In fact, Japan's Chief Cabinet Secretary, Yoshimasa Hayashi reiterated earlier this week that the government intended to closely watch moves in the FX market with a higher sense of urgency. Separately, Japan’s Vice Finance Minister for International Affairs and top FX official Atsushi Mimura said that the government is ready to take appropriate actions against excessive FX moves if necessary. 

Adding to this, Japan’s Finance Minister Katsunobu Kato said this Friday that the government will closely monitor the impact of President-elect Donald Trump's policies on the domestic economy. Furthermore, quarterly data from the Ministry of Finance (MOF) showed that Japan spent ¥5.53 trillion on currency intervention made during the period from June 27 through July 29. Meanwhile, a modest US Dollar (USD) strength prompts some selling around the shared currency, which, in turn, is seen contributing to the offered tone surrounding the EUR/JPY cross and the intraday slide. 

That said, a generally positive risk tone, along with doubts over the Bank of Japan's ability to tighten monetary policy further, could cap gains for the safe-haven JPY and limit losses for the currency pair. Donald Trump’s victory in the US presidential election fueled optimism about stronger economic growth. Adding to this, hopes for additional stimulus from China continues to boost investors' confidence and remain supportive of the upbeat mood. Investors, meanwhile, seem convinced that Japan's political landscape could make it difficult for the BoJ to hike interest rates this year.

Furthermore, data released on Thursday showed Japan’s real wages and household spending declined for the second straight month in September. This could dampen the inflation outlook and delay the BoJ's rate-hike plans. Adding to this, bets for a less dovish European Central Bank (ECB) might hold back traders from placing aggressive bearish bets around the Euro and offer some support to the EUR/JPY cross. This makes it prudent to wait for some follow-through selling before confirming that spot prices have topped out in the near term and positioning for deeper losses.