Japan’s year-on-year inflation came in 100 basis points above consensus, missing the 2% target set by the Bank of Japan. The recent upswing of the EURJPY currency pair temporarily stalled as a result, and traders are now weighing if the rise in Japan’s inflation will be enough to cause a shift in the Bank of Japan’s policy.

On the other hand, Europe saw its inflation tick up ten times less than Japan’s against consensus, rising to 7% but still much further from the 2% target set by the European Central Bank (ECB). The ECB’s Vice Presidents suggested there could be more rate hikes to come despite most of the progress already being made. Further rate hikes by the ECB will widen the interest rate differential and likely support the Euro at the expense of the Yen.

Technical

The EURJPY currency pair’s uptrend has been maintained, with the price moving further from its 100-day moving average in an ascending channel pattern. Support and resistance were established at the 146.699 and 151.606 levels, respectively.

With the price in the middle of the support and resistance range, bulls or bears could be in contention as the market decides whether to take the higher Japanese inflation reading as a booster for the Yen. If bears win the tug of war, the 146.699 level could entice them into a move lower. In contrast, if bulls maintain dominance, they could recommence the move towards the 151.606 level if supported by bullish volumes.

Summary

Traders will likely turn to the ECB’s President Lagarde speech to determine whether the ECB is committed to supporting the Euro and fighting inflation with more rate hikes. However, given that the Euro Area inflation is stubbornly high, the EURJPY could be magnetised to the upside with the 151.606 level probable.

Sources: Reuters, TradingView