EUR/JPY retakes the zone at 155.50 post ECB’s speakers

• EUR/JPY soared above the 155.50 zone, hitting a fresh cycle high of 155.75.
• ECB’s Nagel and Schnabel pointed at additional rate hikes.
• Investors await Friday’s inflation data from Japan.

The EUR/JPY is gaining ground on Wednesday following comments from European Central Bank’s (ECB) speakers which fueled a rise in German bond yields making the Euro gain appeal. On the other hand, the JPY seems to be losing interest after dovish clues seen in Bank of Japan’s (BoJ) April meeting minutes. All eyes are now on Friday inflation data for May.

Yield divergence favors the Euro post-ECB speakers

On Wednesday, ECB’s Isabel Schnabel stated that they should be “stubborn” because inflation remains “stubborn”, while Joachim Nagel claimed that he is confident that inflation will come back to target but that “there is still way to go”. As a reaction, the German yields are seeing gains across the curve. The 10-year bond yield rose to 2.41%, while the 2-year yield stands at 3.19% and the 5-year yields 2.56%, respectively. In that sense, as higher domestic yields attract foreign capital, the Euro strengthens. 

As for now, according to WIRP (World Interest Rate Possibilities), markets are expecting a 25 basis point (bps) hike at the next ECB July meeting. Additionally, the market bet on a 60% probability of another 25 bp rate hike in September, which is expected to increase to around 90% probability in the fourth quarter. If this rate trajectory materializes, the maximum deposit rate will reach 4.0%.

On the other hand, following the release of the dovish minutes from April’s BoJ meeting, all eyes are set on Friday inflation figures from Japan. The Consumer Price Index (CPI) is expected to rise to 4.1% (YoY) vs. the previous 3.5%, while the Core inflation rate, which excludes the influence of oil and food prices, is projected to rise to 4.4% from the previous release of 4.1%.

EUR/JPY Levels to watch

Technically speaking, the EUR/JPY maintains a bullish outlook for the short term, as per indicators on the daily chart. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are both pointing north and the pair trades above its main moving averages, suggesting that the buyers have the upper hand. However, indicators show overbought conditions suggesting that the cross may still be poised for another downward correction.

A move above the 155.75 area (daily high) would suggest a continuation of the bullish trend for EUR/JPY, with next resistances at the psychological mark at 156.00 and 156.50 area. On the other hand, immediate support for the cross is seen at the 155.50 zone level, followed by the psychological mark at 154.00 and the 153.50 zone.

EUR/JPY Daily chart