EUR/JPY sticks to strong gains around 158.00 despite weaker Sentix Investor Confidence Index

The EUR/JPY cross regains positive traction on the first day of a new week and for now, seems to have stalled a two-day-old corrective decline from the 159.75 region, or its highest level since August 2008 touched last Wednesday. The buying interest picks up pace during the early part of the European session and lifts spot prices to a fresh daily peak, further beyond the 158.00 mark in the last hour.

The Japanese Yen (JPY) continues with its relative underperformance in the wake of a more dovish stance adopted by the Bank of Japan (BoJ) and turns out to be a key factor pushing the EUR/JPY cross higher. It is worth mentioning that the BoJ is the only central bank in the world to maintain negative interest rates and is widely expected to stick to its ultra-easy monetary policy settings. Moreover, the recent remarks by BoJ officials ensure that the Japanese central bank will maintain the status quo until next summer.

Apart from this, a generally positive tone around the equity markets, bolstered by the optimism over more stimulus measures from China, is seen as another factor weighing on the safe-haven JPY. China's top economic planner – the National Development and Reform Commission (NDRC) – said this Monday that it would establish a designated department to bolster the country's faltering private economy. This comes on the back of recent policy packages to boost China's ailing private businesses and lift the market sentiment.

The shared currency, on the other hand, draws some support from the emergence of some US Dollar (USD) selling, though lacks bullish conviction in the wake of the uncertainty over further policy tightening by the European Central Bank (ECB). In fact,  a slew of ECB policymakers last week kept the door open for more interest rate hikes in 2023. That said, market participants have been scaling back their expectations for an imminent interest rate hike in the wake of signs of easing underlying inflation in the Euro Zone.

The preliminary data released by the European Union’s statistics agency Eurostat last Thursday showed that the annual Eurozone Harmonised Index of Consumer Prices (HICP) rose 5.3% in August, matching the pace seen in July. That said, the Core HICP inflation, which excludes more volatile energy, food, alcohol and tobacco prices and is closely watched by ECB policymakers, edged lower to 5.3% YoY in August from 5.5% in the previous month. This, along with looming recession risks, might cap gains for the EUR/JPY cross.

The market worries were further fueled by Monday's release of the Euro Zone Sentix Investor Confidence Index, which fell to -21.5 in September from -18.9 in the previous month. The Expectations Index also dropped to -21.0 points, from -17.3 in August. Moreover, the Current Situation Index registered its lowest reading since November 2022 and declined to -22.0 points for the current month. This, in turn, warrants some caution before traders start positioning for the resumption of the EUR/JPY pair's prior well-established uptrend.

Technical levels to watch