EUR/JPY remains above the 20-day SMA after finding support at 148.80

• The EUR/JPY pair is trading with losses for the second day in a row.
• Weak data from the EU weigh on the Euro.
• Expectations about the BoJ’s monetary policy stance following the Japanese wage data could limit the upside potential of the Yen.

On Tuesday, the Euro weakened against its major peers, buoyed by weak economic data from the European Union (EU) and Germany. On the other hand, the yen’s gains could be constrained by the BOJ’s (Bank of Japan) stance following the Japanese wage data, which suggests that the bank will maintain its loose monetary policy.

Bad data from the EU and Germany weakened the euro

In April, Germany experienced a decline in factory orders and retail sales, which was a cause for concern. Factory orders fell 0.4% mom, below forecast growth of 2.8%. This decline followed a revised 10.9% decline in March (initially reported as -10.7%). On the other hand, retail sales stagnated in April compared to the 0.2% expansion expected and after a contraction of 0.4% in March.

German yields weakened across the curve as European Central Bank (ECB) President Christine Lagarde commented on Monday that monetary policy decisions will remain data driven. In this sense, the weakness of the economic data may make those responsible for the ECB reconsider new rate hikes after the June meeting. For next week, the rate hike is already discounted. That said, the 10-year yield fell to 2.35% down 0.86% on the day, while the 2-year yield sits at 2.87% down 0.97% and the 5-year yield at 2.36% with a fall of 0.86% respectively.

Elsewhere, Japan’s labor cash earnings data indicated that wages rose just 1.0% a year, down from 1.3% in March, and significantly below the consensus forecast of 1.8% growth. “The latest wage data from Japan will have been disappointing for the Bank of Japan, which is looking for higher wage growth to support a sustained pick-up in inflation towards its 2.0% target,” MUFG Bank analysts said. In his opinion, the figures reaffirm expectations that the central bank will maintain its loose monetary policy in June.

Levels to watch

The EUR/JPY pair has a neutral outlook in the near term as indicators turned flat on the daily chart. The Relative Strength Index (RSI) is above its midline, but the Moving Average Difference (MACD) continues to create red bars, indicating that there is no clear dominance in the market.

To the upside, a move above the 149.60 zone would suggest a continuation of the uptrend for the EUR/JPY, with next resistances at the 149.85 zone and the 150.00 zone. To the downside, immediate support levels are seen at the 20-day SMA at 149.12, followed by the 148.50 zone and the 148.00 zone.