EUR/JPY sliced through key cloud and then 130.50 resistance like a knife through butter

EUR/JPY rallied to a high of 130.85 from a low of 129.58 as markets turned highly positive. EUR/JPY is currently trading at 130.58 while USD/JPY pulls back to 111.64 from 111.83 highs and EUR/USD bulls meet resistance in its recovery from European session lows. 

European bourses were mixed with the positives:

• German DAX +0.3%;
• French CA C+0.3%;
• Italy MIB +0.6%;

and the laggards:

• UK FTSE -0.7% (lower despite bid in commodities (CRB index strong at 193.29), hit by sterling strength on positive Brexit noise);
• Spain IBEX -0.2%.

However, Wall Street bulls have been far more committed so far. The NASDAQ is up 0.82%, S&P 500, +0.52% and the DJIA is higher by a relatively modest 0.27% at the time of writing. The moves have been spurred on by US Q2 GDP updates in at 4.2%, compared with a 4.1% estimate as well as progress in trade talks and strong corporate results. For the month of August, the Dow is up 2.8%, the S&P is up 3.4%, and the Nasdaq is up 5.5%.

Meanwhile, there is not too much more to be expected from Wall Street for the rest of the day as volumes will be light in the holiday season and in the absence of earnings and data for the rest of the day. Instead, the political overhang in European politics and ear should be left to the ground for further trade headlines given that Canada and the US are in today - Canada’s Freeland said that the US and Canada agreed to meet at 5pm ET today to review. However, both Freeland and PM Trudeau said that the details of their negotiations were not going to be made public. Additionally, Trudeau said that deal could be possible by this Friday - so there could be some sound bites during today an tomorrow, but nothing particularly concrete by the sounds of things.  

Watching yield spreads from here, upside potential in the euro still

EUR/USD has made a recovery back to 1.17 the figure from the European lows of 1.1651 but remains short of the cloud top at 1.1720 as rates push back in favour of the dollar, capping progress and repeated failures below the cloud top may embed a top to August's rally as we draw in for a close to the month. This, in turn, should weigh on EUR/JPY that had otherwise broken up through the cloud top at 130.10 like a knife through butter. However, in terms of the EU/US swap 10yr spread, the market has eroded up through the 2017-20018 downtrend and the 55-day ma and eyes are set om the 200-day ma at -1.858. So keeping an eye on European yields is key at this juncture - watching EUR/USD 1.1790's on such positive moves in EU yields that may come of further stabilisation on European politics - eyes on Italian September budget proposals. 

EUR/JPY levels

EUR/JPY has broken the 2018 downtrend line at 130.50 and now eyes the 50-W SMA at 131.52 on a break of recent highs at 130.85. Then the July high at 131.98 come sin to play. On the downside, analysts at Commerzbank would allow for dips to now hold at circa 129.00-128.50 before another leg higher being seen.