EUR/JPY regains momentum, poised for a weekly gain

• EUR/JPY found support at a low at 156.70 and then recovered towards 157.50.
• Japan reported soft inflation data supporting a dovish stance from the BoJ.
• German yields retreated after soft EZ HICP and mixed German data. 

EUR/JPY has regained momentum and is positioned for a weekly gain as it finds support around 156.70 and rebounds towards the 157.50 area. The JPY has lost appeal after soft inflation data from Japan, which is set to reinforce further the dovish stance of the Bank of Japan (BoJ). On the other hand, German yields are in retreat due to disappointing Eurozone (EZ) HICP (Harmonized Index of Consumer Prices) and weak economic data from Germany. 

EZ and Japan reported soft inflation figures. Dovish BoJ weighs on the Yen

Following the hot inflation figures reported by Spain and Germany, the Eurozone’s Core HICP increased by 5.4%, but below the 5.5% expected, with a 0.3% monthly increase falling short of the 0.7% expected. Earlier in the session, Germany reported that Retail Sales contracted by 3.6% in May, but this was better than the forecasted 4.3% decline, while the Unemployment Rate picked up to 5.7% vs the 5.6% expected.

Meanwhile, according to the World Interest Rate Probability (WIRP) tool, markets discount rate hikes for July, September and December. It's worth noticing that Christine Lagarde from the European Central Bank (ECB) sounded hawkish earlier this week, showing concern with inflation being “uncomfortably high”, suggesting that additional hikes may be appropriate.

On the other hand, the Tokyo Consumer Price Index’s (CPI) headline figure fell to 3.1% YoY in June vs the 3.8% expected and the Core figure to 3.8% (4.1%) expected. That being said, BoJ’S Governor Kazuo Ueda commented on Wednesday that once inflation aligns with the Bank’s forecast, he’ll consider a pivot. As inflationary pressure declines in Japan, they support a more dovish stance, weakening the Yen.

EUR/JPY Levels to watch

According to the daily chart analysis, the EUR/JPY pair remains bullish. Buyers have the upperhand in both the daily and weekly chart; in the latter, they are close to a third consecutive week of gains. However, the cross remains overbought, so a correction shouldn’t be discarded.

In a technical correction, support levels are 157.00, 156.50, and 156.00. On the flip side, if bulls gain further ground, there are resistance levels to monitor at 158.00, 158.50, and 159.00.

EUR/JPY Daily chart