EUR/JPY regains momentum and prepares for a weekly gain

• EUR/JPY found support at the 156.70 low and then rallied towards 157.50.
• Japan reported subdued inflation data supporting the BOJ’s dovish stance.
• German yields They fell back after weak HICP from the Eurozone and mixed data from Germany.

The EUR/JPY pair has regained momentum and is positioned for a weekly rally as it finds support around 156.70 and bounces towards the 157.50 area. The Yen has lost its appeal after weak inflation data from Japan, which will further reinforce the dovish stance of the Bank of Japan (BoJ). Elsewhere, German yields ease on disappointing Eurozone HICP (Harmonized Index of Consumer Prices) and weak economic data from Germany.

The Eurozone and Japan reported weak inflation figures. A dovish BOJ weighs on the Yen

Following good inflation figures released by Spain and Germany, the Eurozone core HICP increased by 5.4%, but below the 5.5% forecast, with a monthly increase of 0.3%, below the 0.7% expected. Earlier in the session, Germany reported that Retail Sales contracted 3.6% in May, but was better than the 4.3% decline expected, while the unemployment rate rebounded to 5.7% versus 5.6% expected.

Meanwhile, according to the World Interest Rate Probability (WIRP) tool, markets are pricing in rate hikes for July, September and December. It should be noted that Christine Lagarde of the European Central Bank (ECB) was very aggressive earlier this week, concerned about “uncomfortably high” inflation, suggesting that further hikes may be appropriate.

Elsewhere, the Tokyo CPI headline data fell to 3.1% yoy in June, versus 3.8% expected, and the underlying data to 3.8% (4.1%) expected. That said, BOJ Governor Kazuo Ueda commented on Wednesday that once inflation aligns with the Bank’s forecasts, he will consider a turnaround. As inflationary pressure in Japan eases, they support a more dovish stance, weakening the Yen.

EUR/JPY Levels to Watch

According to the daily chart analysis, the EUR/JPY pair remains bullish. Buyers are ahead on both the daily and weekly charts; in the latter, they are nearing a third straight week of gains. However, the cross remains overbought, so a correction should not be ruled out.

In a technical correction, the support levels are 157.00, 156.50 and 156.00. On the other hand, if the bulls continue to gain ground, there are resistance levels to watch at 158.00, 158.50 and 156.00.

EUR/JPY Daily Chart