EUR/JPY pares the biggest daily gain in two months near 138.50 ahead of German inflation

• EUR/JPY snaps two-day uptrend while reversing from one-month high.
• Downbeat yields, upbeat Japan jobs report allowed buyers to take a breather.
• ECB vs. BOJ divergence restricts downside momentum.
• Preliminary readings of Germany’s August month HICP will be important for the day.

EUR/JPY bulls take a breather after cheering the biggest day since late June. That said, the cross-currency pair prints mild losses around 138.50, as it reverses from the monthly peak heading into Tuesday’s European session.

The quote’s latest losses could be linked to a pullback in the Treasury yields, as well as firmer Japan data. Also exerting downside pressure on the EUR/JPY prices could be the anxiety ahead of the flash readings of Germany’s key inflation gauge for August, namely Harmonized Index of Consumer Prices (HICP), expected 8.7% YoY versus 8.5% prior.

It should be noted that the US 10-year Treasury yields retreat to 3.08%, down two basis points (bps) following the two-day uptrend to refresh the monthly high.

On a different page, firmer prints of Japan’s Job/Applicants Ratio, to 1.29 in July versus 1.27 expected and prior, appears to have weighed on the EUR/JPY.

Furthermore, the energy crisis in Europe keeps the pair bears hopeful even as the bloc manages to stay ahead of the plan to reserve gas for winter. That said, the latest headlines suggest that Engie SA, a French multinational utility company conveyed that Russia’s Gazprom has informed them of a reduction in gas deliveries starting today due to disagreements between the parties over the application of several contracts.

Alternatively, the hawkish bias of the European Central Bank (ECB) policymakers contrasts with the Bank of Japan’s (BOJ) preference for easy money to challenge the EUR/JPY sellers of late.

Moving on, German inflation and Eurozone Consumer Confidence will be watched for immediate directions ahead of the Eurozone Consumer Price Index (CPI) for August, up for publishing on Wednesday.

Technical analysis

Although the 100-DMA and 50-DMA restrict the short-term EUR/JPY moves between 138.30 and 138.65, gradually advancing RSI, not overbought, keeps buyers hopeful.