EUR/JPY recovers some losses after Ueda and Lagarde’s comments

• The EUR/JPY rebounded from a daily low of 157.22 and stabilised around 157.60.
• Christine Lagarde hinted at a rate hike in July and discarded a rate pause, while Governor Ueda sounded dovish.
• Italian inflation figures from June came in soft, and German confidence data weakened the Euro.

On Tuesday, the EUR/JPY found support at the 157.42 area and then jumped to the 157.60 area – but still traded with losses overall on the day. Meanwhile, German bond yields trade in the red, weakened by weak German confidence data and soft Italian inflation figures, but recovered some losses. Conversely, Kazuo Ueda from the Bank of Japan (BoJ) focused on inflation being below target and maintained its dovish stance.

German yields recovered somewhat but are pressured down by Italian and German data

On Wednesday, Christine Lagarde made a statement suggesting that if the current situation remains unchanged, it is highly probable that there will be an interest rate hike in July. She emphasised that she does not contemplate a pause in the near future. As a result, the German 2-year Bond yield, which had initially experienced a decline, managed to bounce back from its daily lows of 3.16% to 3.20%. This development was primarily driven by investors' renewed interest in the German bond market, leading to increased demand for the Euro currency.

However, German yields – which are treated as a benchmark for the Eurozone as a whole – weakened in the European session after the release of Italian figures from June. The Consumer Price Index (CPI) dropped below the consensus to 6.4% vs the 6.8% expected, and below its previous reading of 7.6%. In addition, Germany reported weak Consumer Confidence data in the early European session as the Growth from Knowledge (GfK) survey came in at -25.4 in July, from a downward revised -24.4 in June.

On the other hand, Ueda maintained its dovish tone stating “underlying inflation is below target” and that he will only consider a policy change once inflationary pressures align with the Bank of Japan (BoJ) forecasts.

EUR/JPY Levels to watch

Based on the daily chart analysis, the EUR/JPY’s positive outlook is intact, and the bulls took a slight breather. However, it is still important to consider the possibility of a correction, as indicated by the Relative Strength Index (RSI) remaining in the overbought territory since mid-June.

If a technical correction unfolds, support levels are 157.00, 156.50, and 156.00. These levels are significant round numbers and could provide support for the cross. On the other hand, if bulls regain momentum, there are resistance levels to monitor at 158.00, 158.50, and 159.00.

EUR/JPY Daily chart