- EUR/JPY saw a decent bounce on Tuesday as geopolitical risk premiums eased, propelling the pair to 131.50.
- In the scenario of continued de-escalation, a move back above 132.00 towards last week’s highs is on the cards.
The EUR/JPY rebounded decently on Tuesday as geopolitical risk premiums that have weighed on the euro in recent days eased somewhat. The pair recovered again at 131.00 and is currently trading at 131.35, up 1.0% from lows of 130.00 on Monday. Russia said it would partially withdraw troops near the Ukrainian border as the nation continued to dismiss Western warnings of possible military action against Ukraine as hysteria. Financial market participants read the move as an easing of tensions, hence the more upbeat macroeconomic mood on Tuesday.
The general market theme was that stocks and risk-sensitive currencies were higher while bonds and safe-haven currencies underperformed, although the euro was an outperformer in the G10 on the day as traders They assessed that the risks for the euro zone dependent on Russian gas imports had diminished. That helped the euro shrug off weaker-than-expected German ZEW survey results for February released in European morning, while the second estimate of euro zone fourth-quarter GDP growth was unchanged from the first in 4.6% year-on-year and 0.3% quarter-on-quarter.
Looking ahead, amid the lack of notable economic events on the Eurozone and Japanese economic calendars for the rest of the week, the main driver for EUR/JPY will continue to be geopolitics. If Friday arrives without any Russian military action against Ukraine, the EUR/JPY pair is likely to have continued to cut the losses it incurred last Friday due to US warnings that war could break out. as soon as this week. In the optimistic case where war doesn’t happen and looks increasingly unlikely, EUR/JPY could probably rally above the 132.00 level and retest last week’s highs near 133.00.
Additional technical levels
Source: Fx Street
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