EUR/JPY threatens cycle high following weak Japanese data

• EUR/JPY consolidates above 157.00 and threatens the cycle high at 158.00.
• The EUR is one of the best-performing currencies on Tuesday, driven by higher German yields.
• Weak Japanese data favours a more dovish stance of the BoJ.

In Wednesday’s session, the EUR/JPY rose near the 157.70 area on the back of a stronger EUR. On the other hand, the JPY weakened after weak economic activity data, which makes investors foresee the Bank of Japan (BoJ) not hurrying to pivot its monetary policy.

Considering this, the German yields are seeing gains across the curve, helping the European currency trade strong against most of its rivals. The 10-year bond yield rose to 2.47%, while the 2-year yield stands at 3.12% and the 5-year yielding 2.52%, respectively with all three seeing gains of more than 1%. 

Moreover, no relevant data will be released from the European block this week, and regarding the next European Central Bank (ECB) decisions expectations, investors await the next set of data. Considering that Christine Lagarde is “open-minded” and that the decision will depend on incoming data regarding the September resolution, markets will closely monitor next week’s Q2 Gross Domestic Product (GDP) and inflation data from July from the European Union.

On the Japanese front, Machine Tool Orders came in at -19.8% YoY in July vs the  -21.1% expected and its previous figure in May, tallying a contraction for seven straight months. In that sense, weak economic data supports a more dovish stance of the Bank of Japan (BoJ) which could apply further pressure on the JPY.

EUR/JPY Levels to watch

Considering the daily chart, the EUR/JPY shows a bullish sentiment for the short term. The Relative Strength Index (RSI), positioned above its midline in positive territory with a northward slope, supports this view along with the positive indication from the Moving Average Convergence Divergence (MACD), which is displaying green bars, pointing towards a strengthening bullish trend. Also, the pair is above the 20,100,200-day SMAs, pointing towards the prevailing strength of the bulls in the larger context.

Support levels: 157.00, 156.00, 155.00.

Resistance levels: 158.00, 158.50, 159.00.

EUR/JPY Daily chart