EUR/JPY: Merkel's coalition gives Euro a boost, Italian election now in focus

• The EUR/JPY bounces on Merkel's successful coalition bid.
• Italian election results due today to set market's tone moving forward.
• Bank of Japan gives a time horizon for ending easing, with strings attached.

The EUR/JPY started the new week off with a gap lower, but that action quickly reversed, and the pair is now trading just beneath the 130.50 level.

The Euro has declined against the Yen for four straight weeks, and the outcome of Italian elections today will bring a substantial impact to market action, though its effect may take time to seep into broader markets. Pollsters in Italy are calling for the former prime minister Silvio Berlusconi and his far-right party allies to come out ahead, albeit without a majority, while the 5-Star Movement, an anti-establishment party, looks to be a significant contender in the polls. 

Giving the Euro a boost ahead of the Italian vote outcome is Angela Merkel's successful bid to form a coalition government with Merkel's CDU/CSU and the smaller SPD. Nearly 80% of registered SPD members voted on the coalition, with 66.02% voting in favour.

Despite the positive vibes coming from elections and coalitions, the Euro still has a deep hole to dig itself out of against the Yen, with last week's statements by Bank of Japan (BOJ) Governor Kuroda throwing an unexpected bullish twist to his words, stating that the BOJ will almost certainly be looking to begin tightening up their easy monetary policy in the fiscal year 2019, with the precise caveat that only if inflation reaches the central bank's targets. Despite the inflation requirement, market participants bid the Yen and sent the EUR/JPY to a six-month low.

EUR/JPY Technicals

The pair found a bounce to cap off Friday's trading and the push at the market open looks set to continue that run, with the week's opening gap closed neatly within minutes of the open. The pair is still trading just south of the 200-day SMA, but pattern traders will note the spinning top and hammer candlesticks, both bullish and coming off the recent low of 129.56. H4 charts show the EUR/JPY still in a heavy state of decline, and the price will have to break the latest lower lows/lower highs step-downs before a fruitful bid higher can take place. Intraday levels see support at 129.90 and 129.60, with resistance sitting at 130.80 and 131.10.