EUR/JPY review: At 7-week high, rally isn't backed by rising yield spread

Yen selling pushed the EUR/JPY pair to 7-week highs in Asia.
The pair remains bid despite stagnant DE (German) - Japan bond yield spread.

Omkar Godbole FXStreet Contributor

The EUR/JPY pair rose to 131.19 in Asia - the highest level since May 22 as the Japanese Yen continued to track other Asian currencies lower.

The cross has rallied more than 3 percent in the last two weeks and could test the 200-day moving average (MA) located at 131.91 before Friday's NY close.

However, the spread between the 10-year German bond yield and the Japanese Government Bond (JGB) yield has remained stagnant 26 basis points since June 28, having declined from the June 11 high of 45 basis points.

Clearly, the rally is not backed by fundamentals, hence the EUR bulls are cautioned against being too ambitious.

Further, the rally could stall as the hourly relative strength index (RSI) is closing on overbought levels.

Hourly chart

Spot Rate: 131.15

Daily High: 131.19

Daily Low: 130.67

Trend: Overbought

Resistance

R1: 131.38 (May 14 high)

R2: 131.91 (200-day MA)

R3: 132.44 (March 13 high)

Support

S1: 130.67 (Asian session low)

S2: 130.24 (100-day MA)

S3: 129.75 (ascending 10-day MA)

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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