EUR/JPY Price Analysis: Bulls comfortably consolidate above the 20-day SMA despite weak European data

At the start of the week, the Euro weakened against most of its rivals on the back of weak industrial data but held gains against the JPY. On the other hand, the Yen trades mixed following the release of the Bank of Japan (BoJ) summary of opinions from the July meeting.

Europe reported mixed data. August’s Sentix Investor Confidence from the Eurozone came in at -18.9, better than the -23.4 expected, while the German Industrial Production (IP) dropped by 1.5% in June, higher than the 0.4% decline expected. As a response, the German yields have weakened across the curve, clearing daily increases. The 10-year bond yield fell to 2.56% after hitting a high of 2.64%, while the 2-year yield sits at 3.12% and the 5-year yielding 2.59% after peaking at 2.65% earlier in the session.

Concerning the next European Central Bank meetings, tightening expectations remain low. According to World Interest Rate Possibilities (WIRP) tool, the markets are currently pricing in a 40% chance of a 25 bps hike in the September meeting, and 60% odds of a 25 bps hike in the October meeting, and a 70% probability of a hike in the December meeting.

On the Japanese side, the Bank of Japan’s (BoJ) summary of opinions revealed that several members favoured tweaking the Yield Control Curve (YCC), with members suggesting directly lifting the YCC to encourage bond investments. In that sense, these signals indicate that the BoJ may be on its way to dropping the YCC policy and eventually starting it's tightening cycle, but the process won’t be quick. In the meantime, the JPY may see further downside on the back of monetary policy divergences against its rivals.

EUR/JPY Levels to watch

Analysing the daily chart, a neutral to bullish technical outlook is evident for EUR/JPY, suggesting that the bulls are gaining momentum but still do not have the upperhand in the short term. The Relative Strength Index (RSI) has a positive slope above its midline, while the Moving Average Convergence (MACD) displays decreasing red bars. Also, the pair is above the 20,100,200-day SMAs, implying that the bulls retain control on a broader scale.

Support levels: 155.80 (20-day SMA), 155.00, 154.00.

Resistance levels: 157.00, 157.50, 158.00.

EUR/JPY Daily chart