EUR/JPY slides beneath 139.00 on softer yields, upbeat Japan data ahead of EU inflation

• EUR/JPY takes offers to refresh intraday low while extending pullback from monthly top.
• Yields remain pressured after retreating from two-month high the previous day.
• Japan’s Industrial Production, Retail Sales came in firmer for July.
• Preliminary readings of Eurozone CPI will be important for immediate directions, risk catalysts are crucial too.

EUR/JPY snaps a three-day uptrend at the monthly top surrounding 139.00 as yields dropped and Japan’s statistics flashed upbeat data on Wednesday’s Asian session. The cross-currency pair’s retreat, however, remains doubtful ahead of the Eurozone Consumer Price Index (CPI) and the Harmonised Index of Consumer Prices (HICP) for the bloc.

Japan’s Industrial Production for July improved to -1.8% YoY versus -2.6% expected and -2.8% prior. On the same line were the Retail Trade numbers for the said period, up 2.4% YoY compared to 1.95 market forecasts and 1.5% prior.

Elsewhere, the US 10-year Treasury yields rose to the highest levels in two months before the latest pullback to 3.10%. The retreat in the bond yields could be linked to the market’s cautious mood ahead of this week’s key data, namely Eurozone inflation and the US Nonfarm Payrolls (NFP).

It should be noted that the yen’s safe-haven status also appears to weigh on the EUR/JPY prices, especially amid the recession woes and the hawkish central bank comments.

However, the monetary policy divergence between the European Central Bank (ECB) and the Bank of Japan (BOJ) could keep EUR/JPY bulls hopeful.

On Tuesday, Germany’s Consumer Price Index (CPI) rose to 7.9% YoY in August from 7.5% in July, compared to the market expectation of 7.8%. Further, the Harmonised Index of Consumer Prices (HICP) for the nation, the ECB’s preferred gauge of inflation, rose to 8.8% from 8.5% as expected. Following the data, Reuters mentioned that near 50-Year high German inflation strengthens the case for a larger ECB rate rise.

That said, policymaker Klaas Knot said on Tuesday that he was leaning toward a 75 basis points rate hike in September and also added that he was open to discussion. On the same line, ECB Chief Economist Philip Lane said on Tuesday, “We need to keep raising interest rates.” Further, ECB Governing Council member Madis Muller told Reuters on Tuesday that he thinks 75 basis points should be among the options for September given that the inflation outlook has not improved. Additionally, ECB member Joachim Nagel also said, “We shouldn’t delay the next interest-rate steps for fear of a potential recession”.

Looking forward, the flash/preliminary readings of the Eurozone HICP for August, expected at 9.0% versus 8.9% prior, will be crucial for the EUR/JPY pair buyers amid talks of higher rates and recession.

Technical analysis

A daily closing beyond a two-month-old resistance line, around 139.10 by the press time, becomes necessary for the EUR/JPY bulls to keep control. Otherwise, a pullback towards an early-month swing high near 138.40 appears imminent.