- EUR/JPY remains at 136.00 on positive news from Russia-Ukraine.
- ECB Chief Economist Lane said it would be appropriate to normalize rates later this year.
- EUR/JPY Price Forecast: Path of Least Resistance is Up, but would depend on market sentiment.
The EUR/JPY it rises in the American session, but is below seven-year highs, driven by news of the Russia-Ukraine front, arising from a possible ceasefire between the two sides, a breakthrough in negotiations after two weeks at a standstill. At the time of writing, the EUR/JPY is trading at 136.24.
Negotiations between Russia and Ukraine improve, market sentiment changes positively
Risk appetite rose after Russia’s Medisnky said the talks had been constructive and Russia is taking two steps to de-escalate the conflict. He also added that a meeting between Putin and Zelenskiy might be possible. On the Ukraine front, the negotiator said neutral status would mean having no foreign military bases.
Headlines lifted market sentiment along with the shared currency against most crosses, including the Japanese yen, which has been under a lot of pressure courtesy of the Bank of Japan (BoJ).
On Monday, the BoJ decided to buy Japanese Government Bonds (JGB) to achieve its Yield Curve Control (YCC) set at 25 bps, as the BoJ maintains its loose monetary policy.
In the European session, the chief economist of the European Central Bank (ECB), Philip Lane, said that “there are scenarios in which it would be appropriate to start normalizing interest rates later this year. And then, of course, there are scenarios where it might be appropriate to move at a later point in time.” However, he added that “inflation will come down at the end of this year and it will be much lower next year and the year after compared to this year.”
The eurozone economic docket presented Gfk German consumer sentiment for April, which fell to -15.5, more than the -14.5 estimate. Furthermore, German import prices for February fell in both annual and monthly readings.
That said, fundamentally, the divergence in central bank policy between the ECB and the BoJ would favor the shared currency. However, it is essential to note that unless Russia and Ukraine reach a truce and the conflict de-escalates, the euro area will feel the pain of high energy prices, which means higher ECB rates but at cost of slower growth.
EUR/JPY Price Forecast: Technical Outlook
Monday’s price action in the EUR/JPY witnessed a seven-year high at 137.54, but pulled back 150 pips to 136.00, in a move lower that appears to be profit-taking due to the steepness of the rally. However, the buying pressure on the EUR/JPY remains due to the size of the real body of the Monday candle, which is longer than the wick, which suggests that the JPY will continue to lose against the EUR if the market sentiment improves. .
That said, the path of least resistance for EUR/JPY is to the upside and it would face its first resistance at 136.50. The break of the latter would expose 137.00, followed by the yearly high at 137.54.
On the other hand, the first support of the EUR/JPY would be 136.00. Once cleared, the next demand zone would be the March 29 low at 135.30, followed by the March 25 daily high at 134.74.
Technical levels
Source: Fx Street
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