EUR/JPY rejected at the 20-day, still set for further downside

At the end of the week, the EUR/JPY traded with losses for a fourth consecutive day, falling to 155.40 and tallying a weekly loss of 1%. In that sense, strong labour market data from Japan made the JPY gain ground agains most of its rivals, including the USD,EUR,GPB and AUD.

During the early Asian Japan reported robust Labor Cash Earnings. The average income of regular employees in the country rose by 2.5% compared to the market's expectation of 0.7% year-on-year in May. As a reaction, the yields on the 2,5 and 10-year Japanese yields rose to their highest level since May and provide additional boost to the Yen.

As salaries in Japan seem to be rising, the Bank of Japan (BoJ) policy is on view as strong economic data can potentially make the central bank consider pivoting to a more contractive monetary policy.

On the other hand, according to the World Interest Rate Probability (WIRP), a 25 basis point (bps) hike is already priced in for July 27. Looking forward, the likelihood of another 25 basis point hike is approximately 60% by September 14 but becomes fully priced by October 26. For inventors to continue modelling their expectations, the German Consumer Price Index (CPI) to be released next week, will be looked upon.

EUR/JPY Levels to watch

The daily chart suggests that the bear’s time seems to have arrived.  The Relative Strength Index (RSI) shows a pronounced negative slope but in positive territory, while the Moving Average Convergence Divergence (MACD) prints higher red bars. However, on the bigger picture, the outlook favours the EUR as the bulls managed to defend the 20-day Simple Moving Average (SMA) and still holds above the 100 and 200-day averages.

Support levels: 155.57 (20-day SMA),154.30, 154.00.
Resistance levels: 156.50, 157.00, 158 (cycle-high).

EUR/JPY Daily chart