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

• EUR/JPY trades with gains, and jumped back above 158.00.

• Higher German yields and monetary policy divergences favour the EUR.

• Investors await wage and spending figures from July from Japan this week.

During the session on Monday, the EUR/JPY cross increased, making its way towards the 158.15 area, with nearly 0.35% daily gains recorded. The Euro is performing strong against the majority of its competitors, while the JPY is one of the weakest performers in the session. This is largely influenced by the ultra-dovish position of the Bank of Japan (BoJ).

Christine Lagarde, president of the European Central Bank (ECB), delivered a speech on Monday but refrained from commenting about the upcoming September decision. Joachim Nagel was also on the wires but didnt give any detailed clues regarding the next monetary policy decisions, and he only showed himself concerned with inflation being too high. Meanwhile, German yields are sharply rising, with the 2,5 and 10-year rates increasing by more than 1%, making the Euro gain interest.

In that sense, the World Interest Rates Probabilities (WIRP) indicates that markets are discounting 25% odds of a 25bps hike in the upcoming Sep 14, 2023 meeting while the chances of a similar hike stand at 45% in October, and at 60% in December. This rate hike path would leave the target rate at 5%.

On the JPYs side, as the Bank of Japan (BoJ) has stated, changes to monetary policy will only be entertained once local wage and inflation indicators match their projections. Japan will report July household spending figures on Tuesday and cash earnings on Friday, which investors will closely monitor to place their bets on the next BoJ decisions.

EUR/JPY Levels to watch

Looking at the daily chart, we see a generally neutral to positive short-term technical trajectory for EUR/JPY as bullish trends gather steam. The Relative Strength Index (RSI) is directed upwards beyond its median value, whereas, the Moving Average Convergence (MACD) shows a series of lessening red bars. Additionally, the currency pair sits below the 20-day Simple Moving Average (SMA) but is above both the 100 and 200-day SMAs. This implies that the overall outlook for the bullish trends is optimistic.

Support levels: 158.00, 157.00, 156.00.

Resistance levels: 158.30 (20-day SMA), 159.00, 160.00.

EUR/JPY Daily Chart