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

• EUR/JPY is trading with gains and back above 158.00.
• Rising yields in Germany and divergences in monetary policy favor the Euro.
• This week investors await July wage and expense figures in Japan.

In the Monday session, the EUR/JPY pair gained ground and approached the 158.15 zone, adding almost 0.35% daily gains. The Euro is trading strongly against most of its rivals, while the Yen is one of the session’s worst performers, driven mainly by the Bank of Japan’s ultra dovish stance.

Christine Lagarde, president of the European Central Bank (ECB), gave a speech on Monday but refrained from commenting on the upcoming September decision. Joachim Nagel was also on the microphones but gave no detailed hints on upcoming monetary policy decisions, only worrying about too-high inflation. Meanwhile, German yields rise strongly, with 2.5 and 10 year rates rising by more than 1%, causing the euro to gain interest.

In this sense, the World Interest Rates Probabilities (WIRP) indicates that the markets discount a 25% probability of a rise of 25 basis points at the next meeting on September 14, 2023, while the probabilities of a similar rise are at 45% in October, and at 60% in December. This rate hike path would leave the target rate at 5%.

On the side of the yen, as the Bank of Japan has declared, changes in monetary policy will only be contemplated when the local wage and inflation indicators adjust to their forecasts. Japan will report July household spending figures on Tuesday and cash earnings on Friday, which investors will watch closely to place their bets on the BoJ’s upcoming decisions.

EUR/JPY levels to watch

Looking at the daily chart, the EUR/JPY pair shows a neutral to bullish technical picture for the short term, as the bulls gain momentum. The Relative Strength Index (RSI) points north above its midpoint, while the Moving Average Convergence (MACD) shows decreasing red bars. Furthermore, the pair is below the 20-day SMA but above the 100-day and 200-day SMAs, indicating favorable positioning for 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