EUR/JPY keeps marching higher and pierces the 133.00 level

• The euro advances higher to reach four-month highs above 133.00.
• The yen remains sold across the board.
• EUR/JPY's rally might extend to 137.51 – Commerzbank.

The euro keeps trading higher against a weaker Japanese yen on Tuesday, buoyed by a higher risk appetite and broad-based yen weakness. The pair is set to extend its rally for the ninth consecutive day, reaching fresh four-month highs above 133.00.

The yen remains weak across the board

The EUR/JPY maintains its bid tone intact after having rallied about 3.5% over the last two weeks, favored by a weaker yen amid a combination of factors. The positive market mood, triggered by strong quarterly earnings by Johnson & Johnson and Travelers has supported the euro, to the detriment of the safe-haven yen, although the JPY is suffering longer-standing issues.

The yen has slumped to three-year lows against the US dollar, with the market positioning for an imminent announcement of QE tapering by the Federal Reserve and speculation about rate hikes in 2022 increases. These expectations have boosted US T-Bond yields, while the Bank of Japan maintains its yield control curve, ultimately crushing the yen’s appeal for the investors.

Beyond that, the surging price of energy, which the country has to import, is threatening to thwart the post-pandemic recovery, which is adding negative pressure on the JPY.

EUR/JPY’s rally could extend towards 137.51 – Commerzbank

From a technical perspective, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, remains bullish on the pair and sees scope for a run to levels past 137.00: “EUR/JPY has maintained its gains. We look for a move to 132.69/80, the 23rd June high, and 78.6% retracement. This is regarded as the last defense for the 134.12 June peak (…) Longer-term, a break above here is favored and will introduce scope to 137.51.”

Technical levels to watch