EUR/JPY edged higher during the European session, moving away from weekly lows around 133.50 levels, after the euro was boosted versus the yen, after the euro zone CPI for February and the jobless rate for January came out above expectations. EUR/JPY currently trades at 134.40 levels, 0.37% higher on the day, having posted day’s low at 133.68 and day’s high at 134.47 levels.
The cross is expected to test weekly 10‐SMA located at 135.92 levels before Friday’s US Non‐farm payrolls data due to the following reasons:
1. ECB QE launch induced losses already priced‐in:
EUR/USD failed in an attempt to breach Jan 26 lows of 1.1098 levels and instead bouncedoff fresh monthly lows reached at 1.1160 levels today, holding firmly above 1.12 mark. This clearly indicates that markets have already discounted the downside risk to the shared currency on the QE launch this Wednesday.
2. Impressive Euro zone data may add to the strength in EUR/JPY:
Markets have turned their focus on strong fundamentals from the Euro area economies with upbeat PMI readings and EMU CPI data boosting the single currency. Moreover, the upcoming Euro zone data including services PMI releases and retail sales data are expected to come in above market forecasts adding to the recent series of encouraging economic releases from the Euro area economies, keeping the euro buoyed.
3. USD/JPY underpinned by US macro data
EUR/JPY is likely to be benefitted by a weaker yen mostly driven by strong gains in the USD/JPY pair as the US dollar is likely to emerge a clear winner ahead of a host of economic releases from the US including the crucial non‐farm employment change numbers. NFP data positively surprised the markets in February coming in at 257K versus the estimate of 236K, prior revised up to 329K. Moreover, higher 10‐year treasury yield, holding firmly above 2% on increased rate‐hike bets after solid US GDP and consumer confidence data may also further boost USD/JPY, dragging the yen to test three‐week lows around 120.50 levels.
Technically, the cross seems well placed above 133.50 levels, from where EUR/JPY has rebounded to the upside on several occasions, forming a key support zone. The cross is on its way to test weekly 5‐ SMA located 134.74 levels. A break above that level, EUR bulls are likely to pierce through 135 handle and extend further to test weekly 10‐SMA at 135.92 levels.
On the other hand, a failure to breach 135 handle, the pair may bounce‐back lower to once again test 133.50 levels and below that doors would open for a test of 132 levels.
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