EUR/JPY clears daily losses despite falling German yields

The EUR/JPY regained momentum during the American Session and jumped back towards 155.90 from a low of 154.84. On the downside, lower German yields limit the Euro’s upside potential, while the JPY seems to be struggling to gain momentum due to the Bank of Japan's (BoJ) expectations to maintain its dovish stance next week.

European Central Bank (ECB) officials delivered mixed signals regarding the next monetary policy moves past July. Klaas Knot argued that hikes beyond July are possible but not a “certainty”, as he stated that the bank must carefully rely on the upcoming data. In addition, Nagel argued, “We will see, the data will tell us” regarding the September decision. According to the World Interest Rates Probabilities  (WIRP), a 25 basis point (bps) hike is already priced in for next week’s meeting, and the odds of a hike stand at nearly 60% for the September meeting and 80% for the December meeting.

That being said, German yields significantly decreased across the board on Tuesday. The 2-year yield dropped to 3.22% while the 5- and 10-year rates to 2.52% and 2.36%, respectively, saw more than 3% declines. In that sense, lower yields are not allowing the Euro to gain traction.

On the Japanese front, BoJ’s governor, Kazuo Ueda, is expected to maintain a dovish stance in next week’s central bank meeting and steadily maintain its inflation forecast. In the meantime, the JPY seems to weaken on monetary policy divergences against its major rivals.

EUR/JPY Levels to watch

The daily chart suggests that slowly, the outlook starts to favour the bulls in the short term, and sellers struggle to gain momentum. However, the 20-day Simple Moving Average (SMA) is a strong barrier for the bulls, which must be surpassed to regain momentum. Meanwhile, the Relative Strength Index (RSI) stands neutral above its midline, while the Moving Average Convergence Divergence (MACD) prints decreasing red bars.

Resistance levels: 156.35 (20-day SMA), 157.00, 158.00.
Support levels: 155.00, 154.50, 154.00.

EUR/JPY Daily chart