The EUR/JPY cross was trying to get back above the psychological level of 130 during the EU session on Monday. Still, considering the lack of macro data, volatility might be minimal today.
Traders paid attention to German wholesale price indices for the month of August. Inflation rose to 12.3% yearly in Aug versus +11.3% in July. This was the highest monthly annual rate of inflation since October 1974 after the first oil crisis.
EU officials spoke Monday
From other news, the German economy ministry said Monday that the GDP growth is likely to pick up significantly in Q3 following a 1.6% QoQ rise in the previous quarter. He also said that the GDP growth is expected to normalize in the fourth quarter.
On the other hand, central bankers keep saying that inflation is only transitory and will decrease over the following quarters.
The European Central Bank Executive Board member Isabel Schnabel said that inflation would noticeably decrease as soon as next year. However, a premature monetary policy tightening in response to a temporary rise in inflation would choke the recovery.
So basically, all inflation measures are up sharply, people are paying way more for everything, and central banks are reluctant to tighten monetary policy. It smells of stagflation or hyperinflation.
Later in the day, the ECB president Christine Lagarde speaks, and her comments might move the EUR/JPY cross, especially if she talks about monetary policy and future plans.
Chart not so bullish anymore
Technically speaking, should the EUR/JPY continue to decline, the medium-term trend might change back to bearish if the euro closes below the 50-day moving average. The next support could be located at 129.00.
However, if the single currency bounces off the 50DMA, the next target is at the psychological level of 130.00, followed by Friday’s highs at 130.20. It seems that the essential resistance is at 130.65, where the cross has failed many times in September.
The recent breakout from the falling wedge pattern is losing its steam, and bulls need to build up some momentum soon. Otherwise, risks are for a larger correction below 129.