EUR/JPY holds above the 20-day SMA after finding support at 148.80
|- EUR/JPY trades with losses for a second consecutive day.
- Weak EU data weights on the Euro.
- Expectations about BoJ's monetary policy stance following wage data from Japan may limit the JPY's upside potential.
The Euro weakened against its major pairs on Tuesday fueled by weak economic data from the European Union (EU) and Germany. On the other hand, the Yen gains may be limited by de BoJ's (Bank of Japan)stance following Wage data from Japan which suggests that the bank will maintain its loose monetary policy.
Poor EU and German data weakened the Euro
In April, Germany experienced a decline in factory orders and retail sales, which was a cause for concern. Factory orders dropped by 0.4% month-on-month, falling short of the expected growth of 2.8%. This decline followed a revised decrease of 10.9% in March (initially reported as -10.7%). On the other hand, Retail Sales, stagnated in April vs the 0.2% expansion expected and after a 0.4% contraction in March.
German yields weakened across the curve as European Central Bank (ECB) president Christine Lagarde, commented on Monday that monetary policy decisions will remain data dependent. In that sense, weak economic data may make ECB officials reconsider further rate hikes following the June meeting. For next week, a rate hike is already priced in. That being said, the 10-year bond yield fell to 2.35% seeing a 0.86 % fall on the day, while the 2-year yield sits at 2.87% with a 0.97 % decline and the 5-year yielding 2.36% with a 0.86 % slide respectively.
On the other hand, Labor Cash Earning data from Japan indicated that wages rose by only 1.0% annually, down from 1.3% in March, and significantly below the consensus forecast of 1.8% growth. “The latest wage data from Japan will have been disappointing for the BoJ who are looking for stronger wage growth to support a sustained pick-up in inflation towards their 2.0% target”, said MUFG Bank analysts. They see the numbers reiforzing expectations that the central bank will maintain its currency loose monetary policy in June.
Levels to watch
The EUR/JPY has a neutral outlook for the short term as indicators turned flat on the daily chart. The Relative Strength Index (RSI) stands above its midline but the Moving Average Convergence Divergence (MACD) continues to print red bars, indicating that there is not a clear dominance in the market.
On the upside, a move above the 149.60 zone would suggest a continuation of the bullish trend for the EUR/JPY, with the next resistances at the 149.85 area and the 150.00 zone. On the downside, immediate support levels are seen at the 20-day Simple Moving Average (SMA) at 149.12, followed by the 148.50 area and the 148.00 zone.
EUR/JPY
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