EUR/JPY grinds higher towards 138.00 despite Italy’s political jitters, softer yields

• EUR/JPY prints five-day uptrend while extending the bounce off the lowest levels since mid-May.
• Softer US dollar, hopes of sustained easy money policies from the Bank of Japan (BOJ) favor pair buyers.
• Moody’s downgrade Italy’s credit outlook, yields pare post-NFP gains amid a sluggish session.
• Downbeat Japan data, weekend numbers from China appeared to have favored bulls as well.

EUR/JPY remains on the front foot for the fifth consecutive day, taking rounds to intraday high surrounding 137.70 of late. In doing so, the cross-currency pair justifies the broad Euro strength despite Italian political fears, as well as ignoring downbeat US Treasury yields.

That said, the Euro appears to cheer the pullback in the US dollar as traders brace for Wednesday’s US Consumer Price Index (CPI) data amid hawkish hopes from the Fed. That said, the greenback rallied on Friday after the US employment report for July propelled the odds of the Fed’s 0.75% rate hike in September.

Elsewhere, political jitters in Italy and Moody’s announcement of cutting Italy’s outlook from “Stable” to “Negative”, while keeping the sovereign rating at Baa3, also should have exerted downside pressure on the EUR/JPY prices.

It should be noted that the US 10-year Treasury yields ease back to near 2.81% after rallying 14 basis points (bps) to 2.83% the previous day, mainly due to the market’s rush for risk safety after the US Nonfarm Payrolls (NFP) propelled hawkish Fed bets.

Additionally likely to favor the EUR/JPY prices is the reduction in Japan’s Trade Balance on BOP Basis for June, down to ¥-1,114B from ¥-760.2B expected and ¥-1,951.2B prior.

Moving on, headlines surrounding Italy and Japan’s Eco Watchers Survey for July could entertain short-term traders.

Technical analysis

EUR/JPY bulls need a clear upside break of the 100-DMA, around the 138.00 mark, to keep the reins. Otherwise, a pullback towards the previous resistance line from July 21 and the 200-DMA, respectively near 135.20 and 133.80, can’t be ruled out.