EUR/JPY eases below 138.00 despite firmer yields, downbeat Japan data

• EUR/JPY picks up bids to reverse the week-start pullback, grinds higher around daily top.
• Yields consolidate previous day’s losses amid a sluggish session.
• Japan Machine Tool Orders, fewer challenges for BOJ appear to favor the pair buyers.

EUR/JPY remains firmer, following a softer start to the week, despite the latest pullback from the intraday high of 137.89. That said, the cross-currency pair benefits from the rebound in the US Treasury yields, as well as the broad weakness in the Japanese yen (JPY).

The US 10-year Treasury yields added one basis point (bp) to 2.77% after losing seven bps to 2.76% the previous day and marking a jump of the 14-bps on Friday. It’s worth noting that the yields recently tracked hawkish Fed bets and firmer US jobs reports to print gains.

The Fed funds futures price in a 69% chance of another 75 bps rate hike in September, per Reuters. On the other hand, US employment numbers for July marked upbeat figures and allowed Fed policymakers to retain their hawkish bias.

Elsewhere, the political uncertainty, suggesting that Japanese Prime Minister Fumio Kishida is up for shuffling the cabinet, appears to weigh on the JPY. That said, Finance Minister Shunichi Suzuki is likely to retain his position, which in turn flashes no major challenges for the Bank of Japan’s (BOJ) easy money policies. The same should keep the JPY bears hopeful.

It should be noted that firmer prints of the Eurozone Sentix Investor Confidence Index also seem to help the EUR/JPY buyers. The key sentiment gauge improved to -25.2 for August versus -24.7 expected and -26.4 prior. Details suggest that the current situation in the eurozone recovered from the lowest since March 2021, to -16.3 versus -16.5 marked in the previous month. An expectations index, however, remains near the lowest since December 2008 while improving a bit to -33.8 at the latest. On the other hand, the US Dollar Index (DXY) registered a 0.19% daily loss to 106.37.

A downbeat print of the Japanese Machine Tool Orders for July, 5.5% YoY versus 17.1% prior, also helps the EUR/JPY to remain firmer.

However, fears of economic slowdown due to the energy crisis and Italy’s political chaos ahead of September’s election seem to challenge the EUR/JPY bulls.

Moving on, yields and the risk catalysts are crucial for the EUR/JPY traders to watch for short-term directions.

Technical analysis

100-DMA level near 138.00 challenges EUR/JPY bulls inside a six-week-old descending trend channel, between 140.90 and 134.25 at the latest. The pair sellers, however, need validation from the 200-DMA support surrounding 133.85 for conviction.