EUR/JPY rose following BoJ decision and German data

The two-day BOJ meeting concluded with an unexpected adjustment to the Yield Curve Control.
Germany’s Inflation data came in line with expectations of 6.5% but lower than the previous 6.6%, and Q2 GDP data disappointed.
Ueda’s dovish tone weights on the Yen.

At the time of writing, the EUR/JPY pair is trading near the 155.50 area, marking a significant 1.54% increase from its opening price. The pair experienced a daily low of 151.40, and then the Yen lost interest as investors took the Bank of Japan decision as dovish.

On the one hand, Thursday’s rumours materialised, and the two-day BoJ meeting concluded with an unexpected adjustment to the Yield Curve Control (YCC) and the offer to buy 10-year JGBs at 1.0% every day, leading to market volatility. The 2-year yield rose to -0.012%, while the 5 and 10-year yields reached 0.162% and 0.567%, respectively. However, the BoJ interest rate decision remained unchanged. Still, Governor Ueda commented that the YCC tweak wasn’t a step to normalisation and that the bank, nowhere near raising rates, is weakening the Yen.

On the other hand, Germany reported encouraging economic data. The Harmonized Index of Consumer Prices (HICP) (YoY) for July aligned with expectations of 6.5%, a bit lower than the previous 6.4%. In addition, the Gross Domestic Product (YoY) for Q2 decreased but was lower than expected at 0.2% vs the projections of 0.3%.

On Thursday, Christine Lagarde commented that monetary policy decisions would be based on incoming data, so soft inflation figures make markets bet on a dovish European Central Bank (ECB). In that sense, the 2, 5 and 10-year German yields are decreasing by more than 0.50%.

EUR/JPY Levels to watch

The daily candlestick chart shows that the EUR/JPY trades bullish, ending the week. The Relative Strength Index (RSI) is just slightly above the midline, with a steep positive slope of 90 degrees. The Moving Average Convergence Divergence (MACD) prints fading soft red bars indicating that bulls are quickly gaining ground. On the bigger picture, the pair trades above the 20-day Simple Moving Average (SMA), reinforcing a bullish momentum.

Resistance levels: 155.84 (20-day SMA), 156.00, 156.50.
Support levels: 155.00, 153.00,151.50.