EUR/JPY: Nikkei rallies, USD/JPY testing 10-D SMA, key events ahead
EUR/JPY is up to test the prior resistance of May 10. at 130.76 as the oscillates in no-man's land above the 10-D SMA at 1.1939 and USD/JPY knocks on the doors of the 10-D SMA while the Nikkei keeps advancing in Tokyo.
EUR/JPY has been in a continuous recovery in May, picking itself from the floor down at 129.23 after a series of consecutive losing days from 133.48 where the greenback spiked, wiping the floor clean with euro bulls from space in the 1.24 handle as the reflation trade unwinds. As the dollar gives back some ground across the board, and as stocks continue to rejoice an impressive earnings season, the cross is attempting a comeback.
Eyes on Italian politics and US retail sales data this week
On the geopolitical front, most risks are already priced into equities. However, with the recent progress in Italian politics that has potentially put an end to more than two months of political gridlock, the outcome in the medium term may not be so market friendly. Leaders of Italy’s far-right League party and populist 5 Star Movement on Thursday moved closer to creating a coalition government and negotiations continued over the weekend - the coalition will be one of the biggest eurosceptic alliances in Europe. Meanwhile, eyes will be on Japan's GDP this week and observes will be looking for confirmation that the BoJ is indeed on hold for a considerable period of time, and depending on the outcome of the US retail sales, that could make for further upside in the cross from here.
The week ahead: all eyes on US retail sales - Nomura
Analysts at Commerzbank explained that the EUR/JPY continues to rebound and argue that it is unclear if the bounce is corrective only but currently we favour the idea of this support holding:
"we would allow for recovery once more to initially 130.90 and also allow for a retest of the 132.64 three month resistance line and the 133.48 recent April high. Failure at 128.96 would push the March 2016 high at 128.23 to the fore. Below it sits the August 2017 low at 127.57."