EUR/JPY holds daily gains after European PMIs

The EUR/JPY tallies a consecutive day of gains standing near the 157.90 zone. The European Purchasing Managers' Index (PMI) data for June revealed weakness, contrasting with the improved performance of Japan's Tankan Manufacturing Index in the second quarter released during the Asian session. However, the Yen is still vulnerable on dovish expectations on the BoJ after soft inflation figures were reported last Friday.

European PMIs came in weak, while Japan’s Economic Outlook improved in Q2

The Manufacturing PMI data for June was released for four European countries. In Germany, the HCOB Manufacturing PMI came in at 40.6, slightly below the consensus expectation of 41. Meanwhile, in France, the survey was reported at 46, up from the consensus of 45.5. In Italy, it came out at 43.8, below the 45.4 consensus and the previous reading of 45.9. Spain's figure came in at 48, matching expectations but lower than the previous 48.4. For the Eurozone as a whole, the 43.4 result showed a continued contraction of the sector and was below expectations of 43.6 and the previous result. 

Despite weak PMI figures, the Euro found support on hawkish bets the European Central Bank (ECB) will continue raising interest rates. The WIRP (World Interest Rate Probability) suggests that markets are betting on a strong likelihood of 90% of a 25 basis points hike on July 27 while the odds of another 25 basis points have increased to stand at approximately 60% for the September 14 meeting.

On the Japanese side, the Tankan Large Manufacturing Index for Q2 for Japan came in at 5, surpassing both the consensus of 3 and the previous reading of 1. Additionally, the Tankan Large Manufacturing Outlook for Q2 significantly improved, reaching 9 compared to the consensus of 5 and the previous reading of 3. However, the BoJ may need more evidence of strong economic activity to pivot its dovish monetary policy stance, so monetary policy divergences may continue to weaken the Yen against most of its rivals.

EUR/JPY Levels to watch

Based on an analysis of the daily price chart, the bullish momentum in the EUR/JPY pair appears to be losing steam, with signs of exhaustion from the bulls. In addition, the Relative Strength Index (RSI) remains in overbought territory, suggesting that a technical correction may come soon.

Regarding potential support levels in case of a correction, traders should monitor the 157.00, 156.50, and 156.00 levels. On the other hand, if the bulls manage to extend their control, resistance levels to watch out for are located at 158.00, 158.50, and 159.00.

EUR/JPY Daily chart