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  • EUR/JPY has been recovering from the lows of 130.95 after a sell-off that ensued in USD/JPY dropping from 114.54 to a low of 113.88 on soured risk appetite in equities following Powell’s hawkishness on Wednesday.
  • EUR/JPY is currently trading at 131.14 with a late turnaround on Wall Street.

EUR/JPY is being hit on European political concerns as well as bond yields hitting new YTD highs. “Rising US yields are USD-supportive but the EUR has been living with a significant yield disadvantage versus the USD for some time without ever really fully reflecting the scale of spreads across the curve. We see wide spreads more as an impediment to the EUR advancing significantly,” analysts at Scotiabank explained.

Key themes in market to watch (TD Securities):

  • “Given some of the oddities associated with the recent leg-up in yields, FX markets may need more convincing. Enter payrolls. We expect the USD to take its cue from USTs, although USD positioning is already sitting quite long, suggesting potential for an asymmetrical reaction on a surprise.
  • We will look to USDJPY for broad USD direction, but given repricing in long-end fed funds, the significance of 115 grows as formidable resistance. 113.50 should offer notable support. Dollar bloc FX remains vulnerable to additional UST selling should payrolls/wages come out firmer.
  • Despite early selling pressure in Treasuries on the back of the move higher in JGB and bund yields, the drop in equities brought some flight to quality demand. The curve continues to steepen, which suggests that this US rates move is more technical in nature rather than a repricing of Fed or growth/inflation fundamentals,” analysts at TD Securities explained.  

EUR/JPY levels

EUR/JPY tested the key confluence level around 130.65 today:

“Ideally we would like to see the market remain underpinned here (favoured) and look for signs of recovery towards 133.13/48. Above 133.48 lies the 135.24 1979-2018 downtrend line. Still further up sit the 137.51 2018 high and the 138.02 2008-2018 resistance line. Initial support below the support line is the 55 day ma at 129.62,” analysts at Commerzbank explained.