EUR / JPY consolidates above 128.00

• In a moderate start to the week, the EUR / JPY consolidated within narrow ranges just north of 128.00.
• The lack of conviction is not too surprising given the looming ECB and BoJ rate decision on Thursday and Friday.
• Before these events, the pair could also be volatile in the face of any further change in risk appetite.

It was a moderate start to the week for the EUR / JPY, with the pair consolidating within tight ranges just north of the 128.00 level. The lack of conviction is not too surprising given the imminent rate decision by the ECB and BoJ on Thursday and Friday, as well as the release of several important data, such as preliminary Eurozone PMIs for December and Japan’s industrial production for October. .

Before these risk events, it would be surprising to see the EUR / JPY find a significant direction. Therefore, traders will be looking for resistance at the 128.50 area to limit price action and recent lows around 1.12750 to act as a bottom. In case 128.50 breaks, wait for the 21-day moving average at 128.70 just above and then last week’s high at 129.00 to act as resistance.

One thing to watch out for ahead of these key macro events later in the week would be whether the Fed meeting on Wednesday or any developments related to Omicron spur a broad shift in market risk appetite. Risks here appear to be tilting to the downside (perhaps the Fed is scaring markets by being overly bullish, or confinement fears are reigniting), and the risks to the EUR / JPY are arguably to the downside as well. Of the two currencies, the yen is considered more of a safe haven.

In fact, the 127.50 level is very significant and a break below it would cause the pair to reach its lowest levels since February. Given the lack of immediate support, a quick move towards the 125.00 area could be on the table if this is the case.

Technical Levels