EUR/JPY ends week lower despite two-day rally

• The EUR/JPY trades for a second consecutive day with gains.
• Cross ends week with gains, but below 150.00.
• Yield divergence favours the Euro.

The EUR/JPY closes the week trading with gains above 149.80 as the Yen weakened across the board on Friday, against its major rivals, including the Sterling Pound, Swiss, the US and Australian Dollars. On the other hand, the Euro is getting traction on the back of rising German bond yields following ECB Lagarde's hawkish comments in Thursday's session.

Yield divergence between Japanese and German bonds traction the Euro

Following the Eurozone's inflation figures during Thursday's session, European Central Bank (ECB) President Christine Lagarde expressed her ongoing concerns about persistent high inflation and its prolonged duration. She emphasized that the interest rate hikes implemented by the ECB have already had a notable impact on bank lending conditions. Despite these efforts, Lagarde expressed dissatisfaction with the current inflation outlook and hinted at further rate hikes.

As a response, the German yields exhibit a mixed performance. The 10-year bond yield settled at 2.32%, reflecting an increase of 3.65% for the day. In addition, the 2-year yield stands at 2.84%, experiencing a gain of 3.98%, and the 5-year yield at 2.35%, demonstrating a slight decline of 0.49%. An improvement in global market sentiment also weighed on bond demand.

On the other hand, the Japanese yields have witnessed a decline. The 10-year bond yield has retraced to 0.41%, indicating a decline of 1.56%. Similarly, the 2-year yield stands at -0.07%, reflecting a loss of 9.7%, and the 5-year yield is at 0.07%, showing a decline of 6.76% and applying further pressure on the Japanese Yen.

Levels to watch

On the weekly and daily charts, the technical outlook for the EUR/JPY appears to be bullish in the short term. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in both charts in positive territory. Only on the daily chart, the MACD remains weak and print decreasing red bars.

Moving above the 149.90 zone would suggest continuing the bullish trend for the EUR/JPY, with the next resistances at the 150 psychological mark area and the 150.50 level. On the other hand, the 20-day Simple Moving Average (SMA) at 149.00 level stands as the critical support level for EUR/JPY. If broken, the 148.50 area and 148.00 zone could come into play.