EUR/JPY edged down on subdued German CPI and a neutral Draghi script

• EUR is under pressure on subdued German CPI data.

• JPYwas boosted by upbeat BOJ Core CPI data and reports of delay in YCC modifications.

EUR/JPY is now trading around 131.40 in thw New York session, edging down by 0.20%, subdued German CPI coupled with a less hawkish or neutral script by Draghi on Monday. Also,  the Yen was boosted by Japanese economic optimism along with an upbeat core BOJ CPI on Tuesday.

The benchmark 10Y GE bund yield is now hovering around 0.677%, edged down by 0.29% and well off the earlier high of 0.688% on some less hawkish, yet optimistic testimonial comments by Draghi on Monday, who said that the Eurozone economy is expanding robustly, although EZ inflation is still dependent on ECB monetary stimulus.

Overall, Draghi’s Parliamentary address seemed slightly dovish and broadly stuck to prior commentaries in an effort to mantain a delicate balance. On QE, he noted, “the possible extension of QE has not been discussed by the Governing Council”.

On inflation, Draghi said “we’re generally more confident that it is proceeding towards our target”, but we also “have to be persistent and patient because the underlying inflation has yet to show more convincing signs of a sustained upward adjustment”. Further, “the evolution of inflation remains crucially conditional on an ample degree of monetary stimulus provided by the full set of our monetary policy measures” On the outlook, he noted that the “economic situation is improving constantly”, but “uncertainties continue to prevail”, so “we need the right blend” of measures. Finally, on FX, he reiterated that the recent volatility in the Euro deserves close monitoring.

On Tuesday, EUR was under renewed pressure after BUBA Chief commented that the ECB may begin to rise rate from mid-2019. When asked about prospects for ECB interest rates, Weidmann pointed to investor expectations built on the economic situation and communication by the central bank. Given the current economic backdrop, expectations for hikes to begin in mid-2019 are “not completely unrealistic,” he said. Weidmann also says ECB interest rate guidance is "rather vague”.

Weidmann’s comments come as the ECB debates how to wind down QE after September and amend language that currently includes a pledge to keep interest rates unchanged “well past” that time. With the 19-nation economy expanding strongly and a increasing confidence that inflation will sustainably pick up, officials have signaled that a shift could come early this year. The market was expecting an eventual start of ECB rate hike by early 2019 and thus a mid-2019 may be negative for EUR at this point in time.

On Tuesday, JPY was boosted by Japanese economic optimism and an uptick in BOJ core inflation. Japanese economy minister said that he “expects consumer spending to continue to rise but will monitor impact from rising consumer prices”. Thus the JP economy minister is quite optimistic about JP consumer spending and rising inflation. At the same time BOJ core inflation came higher at 0.8% vs. an estimate 0.6%; prior: 0.7% (Y/Y), which may be also in line with Kuroda’s observation.

On Monday, BOJ´s Governor Kuroda said Japanese prices are rising. He also reaffirmed his view that the BOJ needs to continue with the current powerful monetary easing program to achieve its 2% inflation target.

There was also a report that the BOJ may refrained from changing its YCC modification (back door tapering) until late 2019 when Japan is supposed to hike its sales tax.

Technically, EURJPY has now a strong support at the 130.80-130.00 area and a resistance at the 132.50-133.10 price zone.