EUR/JPY jumps above 20-day SMA following Ueda’s comments

• EUR/JPY rose to a daily high of 157.20, its highest level in July.
• European’s Core inflation was revised higher to 5.5%.
• Governor Ueda put an end to the hopes of a YCC policy tweak.

On Wednesday, the EUR/JPY gained ground and rose above the 20-day Simple Moving Average (SMA) of 156.38 and then settled just below it. Monetary policy divergences between the European Central Bank (ECB) and the Bank of Japan (BoJ) weigh in the JPY, while mixed German yields may limit the EUR’s upside potential.

The Core Harmonized Index for Consumer Prices (HICP) from June was revised higher from 5.4% to 5.5% and shows that the Core inflation has yet to cool down as it still hovers around the 5.7% peak seen in March.

Regarding the European Central Bank (ECB) for next week’s meeting, markets have largely priced in a 25 basis points (bps) hike while the odds of a similar hike in September hover around 65%. That being said, German bond yields trade neutral, with the 2-year yield decreasing to 3.16% while the 5-year rate stands at 2.51% and the 10-year yield rose to 2.37%.

Governor Kazuo Ueda put an end to the speculations of a Yield Control Curve policy tweak, implying that he would maintain its policy steady in the next meeting. As inflation is far beyond the bank’s target, he argued, "Unless the premise is shifted, the whole story will remain unchanged.” Those comments caused Japanese yields to decrease, suggesting that markets continue to bet on a dovish stance by the BoJ.

For Thursday’s session, investors will eye Trade Balance data from Japan from June, where Exports are expected to have increased, Imports to have decreased but still have a Trade Balance deficit of nearly ¥-46.7B.

EUR/JPY Levels to watch

According to the daily chart, buying momentum is rising as the bears seem to have given up. The Relative Strength Index (RSI) points north in positive territory, while the Moving Average Convergence Divergence (MACD) prints lower red bars. In addition, the par now trades above the 20,100 and 200-day Simple Moving Averages (SMA), suggesting that the short-term outlook is bullish.

Resistance Levels: 156.38 (20-day Simple Moving Average), 157.00, 158.00
Support Levels: 156.00, 155.50, 155.00.

EUR/JPY Daily chart