EURJPY, H4 and Daily
Eurozone retail sales declined in the April reading, correcting -0.4% m/m, after stagnating in March. The annual rate fell back to 1.5% y/y from 2.0% y/y, which together with the deceleration in producer price inflation to 2.6% y/y from 2.9% y/y, will add to the arguments of the doves at tomorrow’s council meeting.
Meanwhile, Eurozone Composite PMI revised up to 51.8, from 51.6 reported initially and versus 51.5 in April. The services reading was revised up to 52.9 from 52.5, which means sentiment improved slightly compared to the previous month, when the reading stood at 52.8. Marginal improvements and the composite is in fact at a three month high, although Markit highlighted the modest pace in overall expansion with the services sector continuing to provide the main impetus, while manufacturing sentiment, especially in Germany, continues to be pressured by geopolitical trade tensions.
In the currency market, EURUSD printed a new 7-week high at 1.1288, aided higher by EURJPY outperformance during the London AM session, though a dollar softening bias has also been in the price-dynamic mix. Technical-inspired buying has been noted in interbank narratives, while an upward revision in the final reading of the May Eurozone services PMI survey provided a fundamental cue.
Interbank traders and high-frequency speculative participants have been buying, encouraged to sell Yen amid the backdrop of reviving risk appetite in global markets.
As for the Euro, gains have come despite mostly negative yields, including an 11% drop in German engineering orders and a fresh record yield low in the 10-year Bund, so perhaps this is not a trend-following behaviour. The Yen, on the other hand, might have more to unwind, assuming the hiatus from risk-off conditions sustains.
EURJPY has posted a 1-week high at 122.25, extending the rebound from the 5-day low seen on Monday at 120.78. In the medium term however, it remains in a downchannel since mid-April as it is trading below the 20-day MA, at 122.50, which is also the next Resistance level. Support is set at 121.64 (day’s low). Momentum indicators are mix. RSI is sloping away from oversold area, while MACD is negatively configured.
Intraday, the asset is trading above the Bollinger Bands, suggesting an overextended move, which could see correction in the near future. Support is set at 121.85-122.00. This comes in contracts with momentum indicators, as RSI is at 64 and MACD lines turned positive, indicating that positive bias holds strongly.
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