EUR/JPY maintains daily gains after European PMIs

• The EUR/JPY pair is trading higher for the second day in a row near 157.90.
• The European PMIs for June were weak.
• Japan’s Tankan Manufacturing Index improved in the second quarter.

The EUR/JPY pair accumulates a consecutive day of gains and remains close to the 157.90 area. Data from the European Purchasing Managers’ Index (PMI) for June revealed weakness, contrasting with the better performance of Japan’s Tankan Manufacturing Index in the second quarter, published during the Asian session. However, the Yen remains vulnerable due to dovish expectations on the BOJ after weak inflation numbers were reported last Friday.

European PMIs were weak, while Japan’s economic outlook improved in the second quarter.

June manufacturing PMI data from four European countries were released. In Germany, the HCOB manufacturing PMI came in at 40.6 points, slightly below the consensus forecast of 41 points. For its part, France reported an index of 46, above the consensus forecast of 45.5. In Italy, it stood at 43.8, below the consensus of 45.4 and the previous reading of 45.9. In Spain, the figure was 48, equal to expectations, but lower than the previous 48.4. In the Eurozone as a whole, the result of 43.4 showed the continuation of the contraction of the sector and was below the expectations of 43.6 and the previous result.

Despite the weak PMI numbers, the euro found support on hawkish bets that the European Central Bank (ECB) will continue to raise interest rates. WIRP (World Interest Rate Probability) suggests that markets are betting on a strong 90% probability of a 25 basis point hike on July 27, while the odds of another 25 basis points have risen to about the same range. 60% for the meeting on September 14.

In Japan, the Large Manufacturing Tankan Index for the second quarter came in at 5, beating both the consensus of 3 and the previous reading of 1. In addition, the outlook for the Large Manufacturing Tankan for the second quarter improved significantly, reaching 9 compared to consensus of 5 and previous reading of 3. However, the BOJ may need more evidence of strong economic activity to pivot its dovish monetary policy stance, so policy divergences may further weaken the yen against most of its rivals.

EUR/JPY levels to watch

Based on daily chart analysis, the bullish momentum in the EUR/JPY pair seems to be running out of steam, with signs of exhaustion from the bulls. Furthermore, the RSI remains in overbought territory, suggesting that a technical correction could be in the offing soon.

As for possible support levels in the event of a correction, we should keep an eye on the 157.00, 156.50 and 156.00 levels. On the other hand, if the bulls manage to extend their control, resistance levels to watch are at 158.00, 158.50 and 159.00.

EUR/JPY Daily Chart