EUR/JPY gains ground following high-tier European data

• EUR/JPY is rising for a third consecutive day, above 157.00, consolidating itself above the 20-day SMA.
• European Manufacturing PMI shows weakness, while Unemployment figures came in better than expected.
• The JPY continues to trade weak amid BoJ’s dovish stance, also weakened by soft Chinese data.

The EUR/JPY continued to gain ground in Tuesday’s session. The EUR strengthened against most of its rivals. At the same time, the JPY continues to lose interest, mainly amid the Bank of Japan's (BoJ) dovish stance and the weakness in China’s economic activity.

Investors digest European and Chinese data

On the data front, the German, Spanish, Italian and French Manufacturing PMIs continued to show weakness in July, and the Eurozone’s index came in at 42.7, matching expectations and the previous reading. Other data showed that the Unemployment rate in Germany dropped in June to 5.6%, lower than the 5.7% expected, as well as in the Eurozone, where it dropped to 6.4% (vs 6.5% expected). Its worth noting that Christine Lagarde pointed out in the last European Central Bank (ECB) decision that the economic outlook remains highly uncertain but that the labour market remains robust. Regarding the following choices, she stated that they would depend on incoming that as she will retain an “open-minded” approach.

Regarding the Japanese Yen (JPY) is depreciating against other currencies as a result of the Bank of Japan's (BoJ) dovish stance and limited flexibility in their Yield Control Curve (YCC). As long as inflation stays below their projections, the BoJ states it has no plans to normalise monetary policy. 

In addition, Chinese economic data disappointed as the Caixin Manufacturing PMI fell to 49.2, indicating contraction and missing expectations of 50.3 and the previous 50.5. The weakness in China's economy will likely impact the Japanese Yen (JPY) since China is Japan's leading trading partner. The JPY may face downward pressure due to concerns over reduced trade and economic activity between the two countries.

EUR/JPY Levels to watch

Analysing the daily chart, the EUR/JPY technical outlook is bullish in the short term. The Relative Strength Index (RSI) is positioned above its midline in positive territory. It has a northward slope, indicating a favourable buying momentum. It is further supported by the positive signal from the Moving Average Convergence Divergence (MACD), which displays green bars, underscoring the growing bullish momentum. Moreover,the pair is above the 20,100 and 200-day Simple Moving Averages (SMAs), pointing towards the prevailing strength of the bulls in the larger context.

Resistance levels: 157.80,158.00, 159.00.
Support levels: 155.84 (20-day SMA), 155.500, 155.00.

EUR/JPY Daily chart