EUR/JPY grinding higher for the fourth consecutive day, eyeing 129.00 handle

• Improved risk-on sentiment sees little demand for the safe-haven Yen.
• Traders are putting asides risks associated with the US-China trade war and focus on the upbeat US economy and Italy  forming a new government.  

EUR/JPY is trading up for the fourth day in a row. The currency cross gained about 400 pips since it bottomed out on May 29. Spot is currently at around 128.35  up 0.5% on Monday. The bulls managed to bring the market above the 50-period simple moving average on the 4-hour chart, adding to the bullish case for EUR/JPY.  

Little safe-haven yen demand has been seen across the board as the three main US stock indices, the S&P500 Index, the Dow Jones Industrial Average and the Nasdaq Composite Index had a solid bull run on the first day of the week. Investors decided to pull aside the trade war concerns between the US and China and  to focus on the latest Nonfarm Payrolls report which came better than expected last Friday. Italy’ finally forming a government is also helping the risk-on sentiment to recover.

“Latest economic reports indicate that consumers finally have confidence and extra income to spend on big-ticket items. Really low levels of unemployment and underemployment bode well for the retail sector and the market in general,” said Diane Jaffee, senior portfolio manager at TCW Group.

On the macroeconomic front, investors disregarded the worse-than-expected data from the Eurozone. In fact, the Producer Price Index for April year-on-year came below estimates at 2.0% versus 2.4% while the month-on-month data came at 0% against 0.3% in April. The Sentix Investor Confidence in June came below expectations at 9.3 versus 18.4 forecast.  

Looking ahead on Tuesday, traders will shift their attention to the Eurozone Markit Composite and Services PMI for May and to the Retail Sales data scheduled at 8:00 and 9:00 GMT respectively. To a slightly lesser extent the German PMI will also be on the trader’s radar at 7:55 GMT. The dataset is not expected to be a major market mover but might offer some short-term trading opportunities. Meanwhile, the Japanese Markit Services PMI is scheduled at 00:30 GMT on Tuesday.

EUR/JPY 4-hour chart  

The short-term momentum is bullish with the market trading above its 50-period simple moving average on the 4-hour chart. Support is seen at the 128.00 handle followed by the 127.20 demand level. To the upside, the bulls should meet resistance at the 129.00 handle with the 100-period simple moving average on the 4-hour chart and at the 130.23 level with the 200-period SMA.