EUR/JPY set to post a weekly decline after Japanese inflation data

• EUR/JPY dropped near 158.00, still trading in cycle highs.
• After two consecutive weeks of gains, the cross will close a weekly decline of 0.30%.
• The Japanese National CPI from July came in higher than expected.

On Friday, the JPY traded strongly against most of its rivals, making the EUR/JPY cross retreat to the 158.00 area. In that sense, inflation data fueled some hopes of the Bank of Japan (BoJ) pivoting, but more evidence may be needed for the bank as their eyes are also set on the Chinese financial woes. On the EUR side, the Harmonized Index of Consumer Prices (HICP) revisions from July didn’t reveal any surprise.

Japan reported the July National Consumer Price Index (CPI), which came higher than expected. The headline figure came in at 3.3% YoY vs the 2.5% expected and matched the previous figure of 3.3%. In addition, the Core measures excluding energy, food and non-fresh food matched expectations. As a reaction, the JPY is trading strong against most of its rivals, but this inflation figure may be different from what the Bank of Japan (BoJ) expects to see to pivot as economic figures showed weakness during the week. In addition, the bank closely watches the Chinese situation, and they won’t rush to leave their accommodative stance.

On the European side, the Harmonized Index of Consumer Prices (HICP) revisions for July from the European Union didn’t reveal any surprises. They confirmed a monthly contraction for the Core measure. In addition, the dovish narrative amongst the European Central Bank (ECB) officials limits the EUR and decreases German bond yields.

In that sense, the Euro is somewhat soft, as markets received a  dovish signal from European Central Bank's (ECB) Martin Kazaks as he stated on Thursday, “If we look at the coming months, if there’ll be increases in interest rates, then they’ll be very small.” Eventually, it will come down to the incoming data due to the data-dependency approach of the bank, and according to the World Interest Rate Possibilities (WIRP) tool, markets are still indecisive regarding the next September meeting as they price in only 50% odds of a 25 basis point hike. Still, those possibilities rise to 80% and 90% in October and December.

EUR/JPY Levels to watch

Based on the daily chart, EUR/JPY maintains a neutral to bearish technical perspective, suggesting that the bears gradually gain momentum but are not yet fully in control. The Relative Strength Index (RSI) points towards a potential reversal, as its positive slope above the midline weakens, while the Moving Average Convergence (MACD) prints shorter green bars. The pair is above the 20,100 and 200-day Simple Moving Averages (SMAs), indicating that the buyers still dominate the broader perspective.

Support levels: 156.00, 155.50, 155.00. 

Resistance levels: 159.00, 160.00, 160.50.

EUR/JPY Daily chart