EUR/JPY gains ground and bulls march towards the 20-day SMA

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• EUR/JPY tallies a three-day winning streak and trades near the 20-day SMA at 156.30.
• JPY weakened following soft Chinese economic data.
• All eyes on Japanese Trade Balance data on Thursday and on BoJ’s upcoming decision.

At the start of the week, the JPY traded soft against most of its rivals including the USD, EUR and GBP as the Yen lost traction following soft economic data from China. Investors are still modeling their expectations towards the next Bank of Japan (BoJ) decision so Trade Balance data will be closely followed.

China released mixed June Retail Sales and soft  Q2 Gross Domestic Product (GDP) figures. GDP came in at 0.8% QoQ, as predicted, compared to 2.2% in Q1, while the annualised pace was 6.3%,  below the expected 7.1% and 4.5% in Q1. Retail Sales came in at 3.1% YoY versus 3.3% anticipated in June, significantly dropping from the previous figure of 12.7% seen in May, while Industrial Production came in at 4.4% YoY beating the 2.5% projected and the previous 3.5% in May. Since China is Japan’s main trading partner the release of the data weakened JPY as lower Chinese demand could contribute to Japan’s economy softening.

Attention is now set on the next Bank of Japan (BoJ) decision. The markets speculated recently that a tweak in the bank’s Yield Control Curve (YCC) on the back of rising local wages could favor the JPY. In addition, investors will keep an eye on any macro forecasts as Bloomberg reported that its likely that the BoJ will update its inflation projections.

On the other hand, the European’s macroecononmic calendar remains scarce this week as attention turns to next week’s European Central Bank (ECB) decision where markets are expecting a 25 basis points (bps) hike.

EUR/JPY Levels to watch

According to the daily chart, the downwards momentum is fading out and the bulls are taking the command. The Relative Strength Index (RSI) points north standing above its midline, while the Moving Average Convergence Divergence (MACD) prints decreasing red bars signalling that the bulls are gaining traction.

Resistance Levels: 156.30 (20-day Simple Moving Average), 157.00, 158.00
Support Levels: 156.00, 155.50, 155.00.

EUR/JPY Daily chart