EUR/JPY trades at highest level since March 2016

Hawkish Draghi and the resulting spike in the German bund yields and the treasury yields on Tuesday pushed the EUR/JPY to 127.48; its highest level since April 2016. The cross was last seen trading around 127.20 levels.

Draghi prepping markets for QE taper

ECB’s Draghi said in a speech in Portugal yesterday that the deflationary forces have been replaced by reflationary ones. The hawkish tone suggests the President could be prepping up markets for an eventual QE taper.

This resulted in a spike in the German yields, leading to a broad based rally in the common currency. Meanwhile, the uptick in the treasury yields weighed over the Japanese Yen. Moreover, a spike in the global bond yields means the BOJ would have to buy more bonds in order to keep the 10-year yield around zero percent as planned.

The losses in the Asian equities today may stall the sell-off in the Japanese Yen. Draghi is once again set to take center stage today. The EUR may scale new multi-month highs if the central bank chief reiterates Tuesday’s hawkish message.

EUR/JPY Technical Levels

A break above 127.96 (Aug 2013 low) would open doors for 129.17 (0.618 Fib extension of Apr low - May high - June low) and 130.00 (zero levels). On the downside, failure to hold above 126.47 (Apr 2016 high) would expose 125.80 (May 2017 high) and 124.33 (weekly low).