132.42 -0.28%
    0.63 0.67%
    0.91 -0.26%
    1.34 -0.6%
    144.37 0.26%
    0.88 -0.16%
    1.09 0.55%
    1.24 0.71%
    0.68 1.51%

EUR/JPY attacks 130 after EU inflation data

Rising inflation in the EU has been positive for the Euro. The EUR/JPY cross should remain bid.

The EUR/JPY cross was trading 0.3% stronger during the European session on Tuesday, rising toward the crucial psychological level of 130.

Earlier in the day, German labor market data came out above market expectations, with the unemployment rate sliding to 5.5% in August , from 5.6% previously, while the unemployment change rose from -90,000 to -53,000. The euro remained elevated after the data.

European inflation continues to accelerate

Additionally, the EU CPI numbers were also released. The annualized change jumped to 3.0% from 2.2% in July, versus 2.7% expectations. That is way above the 2% threshold set by the ECB. Furthermore, excluding food, energy, and other volatile items, the core inflation more than doubled to 1.6% from 0.7% previously .

Looking at the main components of the euro area inflation, energy is expected to have the highest annual rate in August (15.4%, compared with 14.3% in July), followed by non-energy industrial goods (2.7%, compared with 0.7% in July), food, alcohol and tobacco (2.0%, compared with 1.6% in July) and services (1.1%, compared with 0.9% in July).

EUR/JPY news

However, the European Central Bank is not expected to taper its bond purchases or tighten monetary policy anytime soon, possibly increasing inflation further.

The JPY is an anti-cyclical “safe-haven” currency like the USD is. Hence, slower global growth and weaker risk appetite should drive the JPY stronger. On the other hand, sentiment in the markets remains positive and bullish, documented by the rising equities . As long as that is the case, the Yen should be offered and remain under pressure.

External factors drive our view on USD/JPY, but we note that several domestic factors are suggesting that there is no need to be too bearish on the JPY. For example, the Bank of Japan’s balance sheet is already in the midst of tapering, and Japanese residents’ portfolio outflows have slowed. Analysts at HSBC said a note on Tuesday.

Falling wedge pattern confirmed

The large falling wedge pattern on the daily chart has been confirmed by the break above 129.30 , where the 200-day moving average was. So as long as the cross trades above 129.30, the medium-term outlook seems bullish.

The single currency needs to settle above the psychological round number of 130 to confirm the short-term bullish bias. Therefore, the next target should be in the 130.70 region, where previous highs are seen. There is a nice bullish divergence between the MACD indicator and the price, supporting the bullish outlook.

Alternatively, the current support is at the mentioned 200-day moving average at 129.30, and if not held, the euro might decline toward the broken, bearish trend line near 129.00. However, the cross must defend this area to remain in a medium-term uptrend and for the pattern to stay active.

EUR/JPY daily chart Source:

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