EUR/JPY: Euro consolidating at fresh 5-month low with Powell’s testimony 2.0 ahead

• Euro is suffering on policy divergence with macro data providing little support.
• Tokyo CPI on Friday expected to rise at 1.4% y/y.

The EUR/JPY is little changed at around 130.10 after seeing a 210 pips drop yesterday and hit a new 5-month low. The main reason for the currency cross to suffer is the monetary policy divergence between the US and Europe as the Federal Reserve Chairman Jerome Powell is set to deliver the second part of his Congressional testimony on Thursday, while Tuesday introductory part opened the way for broad US Dollar gains that concentrated on EUR and GBP. 
 
Earlier on Thursday the manufacturing PMI for February came in just above expectation at 58.6 vs 58.5 while the Eurozone unemployment rate came in line at 8.6% in January without having any significant impact on Euro.
 
The Bank of Japan Governor Kuroda made a comment in parliament overnight that despite solid economic growth, wages and prices are still relatively weak in Japan. 
 
Earlier this week Kuroda said that once the price target for inflation has been reached and the economy is stable the BoJ would not continue its aggressive monetary easing. The Yen has been appreciating against ever since and the EUR/JPY is now trading at a 5-month low.
 
The next significant data for Yen is on Thursday with Tokyo core CPI expected to rise 1.4% over the year in February, up from the previous reading of 1.3% y/y.    
 
The EUR/JPY is trading in a downtrend since February 1, 2018, and on Wednesday it has broken below its 200-period simple moving average on the daily chart. The 131.00 level has been broken to the downside and it is a 23.6% Fibonacci retracement from the July 2017-February 2018 bull run. The next support is seen at 127.00 which is the 38.2% Fibonacci retracement from the July 2017-February 2018 bull run. To the upside, resistance is seen at 132.00 figure and congestion level, further up 133.50 with the 100-period simple moving average should provide some solid resistance as well.

EUR/JPY daily chart