EUR/JPY jumped to a fresh 2-1/2 week high of 133.49 in the overnight trade as the bid tone around the common currency improved after Catalonia suspended its bid for independence and record highs on Wall Street and gains in Spanish equity markets kept the Yen on the back foot.
Though encouraging, the gains in the EUR/JPY are not backed by a widening bond yield differential. The spread between the German 10-year Bund yield and the Japanese 10-year government bond yield stands at 40 basis points; well below the September 18 high of 44 basis points.
Still, the cross may remain bid as the dialogue between Catalonia and Spanish government is EUR positive. A better-than-expected Eurozone industrial production (due at 0900GM) could provide an additional boost to EUR pairs.
The positive mood may turn sour if the stock markets turn risk-off and/or investors take into consideration the stagnation in the yield spread.
EUR/JPY Technical Levels
A move above NY high of 133.49 would open up upside towards 134.17 (Sep 19 high) and 134.41 (Sep 22 high). On the downside, breach of support at 132.62 (10-DMAA) could yield a sell-off to 132.00 (zero levels) and 131.85 (Oct 9 low).
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