EUR/JPY advances, still capped by the 20-day SMA

• EUR/JPY trades with gains, and jumped back above 158.00.
• Higher German yields and monetary policy divergences favour the EUR.
• Investors await wage and spending figures from July from Japan this week.

In Monday’s session, the EUR/JPY cross gained ground and marched towards the 158.15 area, tallying nearly 0.35% daily gains. The Euro trades strong against most of its rivals, while the JPY is one of the worst performers in the session, mainly driven by the Bank of Japan’s (BoJ) ultra-dovish stance.

Christine Lagarde, president of the European Central Bank (ECB), delivered a speech on Monday but refrained from commenting about the upcoming September decision. Joachim Nagel was also on the wires but didn’t give any detailed clues regarding the next monetary policy decisions, and he only showed himself concerned with inflation being too high. Meanwhile, German yields are sharply rising, with the 2,5 and 10-year rates increasing by more than 1%, making the Euro gain interest.
 
In that sense, the World Interest Rates Probabilities (WIRP) indicates that markets are discounting 25% odds of a 25bps hike in the upcoming Sep 14, 2023 meeting while the chances of a similar hike stand at 45% in October,  and at 60% in December. This rate hike path would leave the target rate at 5%. 

On the JPY’s side, as the Bank of Japan (BoJ) has stated, changes to monetary policy will only be entertained once local wage and inflation indicators match their projections. Japan will report July household spending figures on Tuesday and cash earnings on Friday, which investors will closely monitor to place their bets on the next BoJ decisions.

EUR/JPY Levels to watch 

 Observing the daily chart, EUR/JPY displays a neutral to bullish technical outlook for the short term as the bulls gain momentum. The Relative Strength Index (RSI) points north above its middle point while the Moving Average Convergence (MACD) lays out decreasing red bars. Moreover, the pair is below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, indicating a favourable position for the bulls in the bigger picture.

 Support levels: 158.00, 157.00, 156.00.

 Resistance levels: 158.30 (20-day SMA), 159.00, 160.00.

EUR/JPY Daily Chart