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EUR/JPY Recovers Daily Losses Despite Negative Market Sentiment
The EUR/JPY found support at 155.06 and subsequently recovered to 156.60. The European and German PMIs came in below expectations. The Yen is weighed down by low inflation figures and monetary policy divergence.
Despite initial losses, the EUR/JPY pair recovered, rising from a low of 155.06 to a high of 156.60 before closing with slight losses. Weaker-than-anticipated data from the United States, the United Kingdom, and the Eurozone appear to be having a greater impact on the Yen, as the USD/JPY reached monthly highs. In addition, the divergence in monetary policy between the European Central Bank (ECB) and the Bank of Japan (BoJ) exerts additional selling pressure on the JPY.
The HCOB Manufacturing PMI fell to 41 and 43.6 in Germany and the Eurozone, respectively, in June, indicating that manufacturing sector activity contracted at an accelerating rate in both regions. Although HCOB Services PMIs remained above the expansion threshold of 50, they declined substantially from May levels to 52,4 and 54,1.
In addition, poor performance in the United States and the United Kingdom contributed to a negative market environment. However, global bond yields are falling, indicating increased demand for bonds, whereas stock indexes are declining. In this regard, the German DAX (DAX) and the Japanese Nikkei Stock Average both declined by more than 1 percent.
Soft inflation figures remind investors that the BoJ may maintain its dovish posture, which further weakens the yen. The National Consumer Price Index and Core Inflation fell short of expectations in May, falling 3.2% YoY and 4.2% YoY, respectively. Looking ahead, investors will closely monitor the speeches of BoJ and ECB central bankers next Wednesday at the ECB Sintra Forum for hints about the next stages of both banks' monetary policies.
The EUR/JPY has a clear, more favourable prognosis versus the Yen based on the daily and weekly charts. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are both in overbought territory on both charts, indicating that investors are in control as the pair trades above its key moving averages. However, a technical correction to the downside should not be ruled out for the upcoming sessions.
The next area of resistance for EUR/JPY is seen at 156.90, followed by 157.50 and the psychological level at 158.00. In contrast, immediate support for the cross is seen in the region of 155.50, followed by the region of 155.00 and the 154.00 level.
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