The EURJPY exchange rate has rallied from the 170.00 level and looks to hold this as support.
EURJPY – Daily Chart
The EURJPY has rallied strongly from the support that goes back to May this year. The resistance ahead is at the 174.00 level, with a failure opening up a larger correction.
The Japanese yen was volatile as the U.S. dollar and euro changed course, which was followed by comments by BOJ Governor Kazuo Ueda. The central bank’s unwillingness to commit to interest rate hikes has hurt the yen. The BoJ decided to keep its short-term interest rate target unchanged as expected in the range of 0.40%-0.50% at its meeting on Thursday.
Meanwhile, signs of slower inflation in Japan and domestic political uncertainty might complicate the BoJ’s policy normalization path, which contributes to capping the JPY. An upward revision of the BoJ’s inflation forecast also keeps the door open to an imminent interest rate hike before the end of the year. Adding to some positive economic data last week, the yen was getting some respite from recent weakness.
Retail Sales in Japan grew for the 39th consecutive month in June, by 2.0% year-on-year. As was expected, the BoJ decided to maintain the status quo at the end of the July meeting. The central bank revised its CPI inflation forecast to 2.7% for the fiscal year, vs the previous prediction of 2.2%.
“Yen bears have something to cheer again as Gov. Ueda press conference is full of dovish remarks. Governor Ueda is advocating patience to observe the tariff impact after the US-Japan trade deal and downplayed that the Bank will be behind the curve in normalising policy,” said Alex Loo at TDS Macro.
“The nail in the coffin for JPY was when the BoJ stated ‘the yen isn’t deviating much from BoJ’s view’ which reads as the BoJ and government officials are happy for the JPY to trade on the weak side”.
The euro weakened after signing its trade deal with the U.S., but it is in the same position as Japan, which also signed up.
The euro area will have data released tomorrow at 5pm HKT with the latest CPI consumer price index. Analysts expect to see an annual price increase of 2.2%, but that would be down from last month’s 2.3%.
The support test will be important for the direction of the pair in the week ahead.
