EUR/JPY falls to mid-June lows despite weak Japanese data

• The EUR/JPY records a seven-day losing streak and fell to a low near 153.40 for the first time since mid-June.
• Japan reported weak PPI and Machinery Orders data.
• Investors continue to bet on a YCC tweak by the BoJ in July.

In Wednesday’s session, the JPY gained further ground against the EUR and managed to hold gains despite weak economic data reported during the Asian session. Despite inventors continue to bet on a liftoff by the Bank of Japan, analyst at Rabobank think otherwise.

The Cabinet Office reported that Machinery Orders dropped 7.6% in May MoM, far above the 1% decline expected, and recorded a yearly decrease of 8.7%. In addition, the Statistics Bureau reported that Produce Price Inflation (PPI) decline to 4.1% in June, below the 4.3% expected, from the previous 5.2% figure. 

Investors shouldn’t be so confident about a potential BoJ monetary policy pivot as the economy is softening. That being said, analysts at Rabobank stated that concerns about the global economy outlook amid the tight monetary policy of the US suggest the BoJ’s possibility of a pivot is likely to be “narrow” and “non-existent”. In addition, China’s economic situation should be closely watched because it is showing weakness and may contribute to the downturn of Japan’s economic activity. In that sense, Thursday’s Trade Balance data from China from June will be closely watched as it can fuel volatility in the JPY’s price dynamics.

On the Euro’s side, its economic calendar had non-high-tier data released. Spain confirmed its Consumer Price Index declined below 2% to 1.9% YoY in June. Regarding the European Central Bank’s (ECB) next movements, a 25 basis points (bps) hike is already priced in July, and investors bet on high probabilities of additional increases in September and October. In that sense, hawkish bets on the ECB may limit the Euro’s losses.

EUR/JPY Levels to watch

According to the daily chart, the bears are clearly in command, and oversold conditions are already seen in the 4-hour chart. That being said, after seven days of losses, an upwards technical correction should be taken of the table as bears may start to lose some traction. Meanwhile, the Relative Strength Index (RSI)  points south in negative territory, while the Moving Average Convergence Divergence (MACD) stands with higher red bars.

Support Levels: 153.40, 153.00, 152.50.

Resistance Levels: 155.40, 156.11 (20-day SMA), 157.00.

EUR/JPY Daily chart