EUR / JPY bounces away from 3-month lows near 129.60

• EUR / JPY remains on the defensive and falls below 130.00.
• The JPY is further appreciated by falling US yields.
• The ECB announced a symmetric inflation target of 2%.

The solid pace of the Japanese safe haven weighs heavily on the risk complex and dragged the EUR/JPY to new 3-month lows in the region of 129.60.

EUR / JPY under pressure from risk aversion

EUR / JPY has lost ground steadily since last Friday due to persistent risk aversion bias, strong dollar and lately the persistent appreciation of the Japanese currency in response to falling US yields.

In fact, 10-year US yields fell to fresh 5-month lows early in the session after hitting the 1.25% area, only to rebound to 1.30% at the time of writing.

Closer to home, there are no surprises in the ECB’s strategy review, as President Lagarde announced that the central bank changed its inflation target to a “symmetric 2%” medium-term target. In addition, the ECB will keep the CPI as the appropriate measure for inflation, but will now include some measures of the housing sector (costs of owner-occupied housing).

The central bank considers the higher inflation to be largely transitory and has thus far avoided any mention of the decline for the foreseeable future, keeping the broad-based dovish tone unchanged.

On the calendar, the German trade surplus fell to 12.6 billion euros in May and the current account surplus also fell to 13.1 billion euros in the same period. In the US, initial claims increased by 373,000 weekly modestly disappointing the consensus.

Technical levels

So far, the cross is retreating 0.33% to 130.00 and faces the next support at 129.62 (July 8 monthly low) followed by 128.29 (March 24 weekly low) and then 128.12 (200-day SMA). On the other hand, a breakout of 131.02 (100-day SMA) would point to 132.36 (50-day SMA) and finally 132.69 (weekly high on June 23).