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EUR/JPY recovers from 1-month lows at 127.20, but negative trend persists

  • EUR/JPY recovered from the 128.20 lows to the 128.75 area, but is nonetheless trading lower as the recent negative bias continues.
  • Many technicians, perhaps anticipating the continued demand for the yen as a safe haven, will point to a test of the December lows of 127.50.

Although the pair recovered from its previous session lows of 128.20 to the 128.75 area in most recent trades and thus reduced the day’s losses to just 0.25% from 0.6%, the negative bias of the EUR/JPY keep going. Indeed, Tuesday’s EUR/JPY lows were a new low in over a month and mark a sixth consecutive session in which the pair has posted a lower low. After Monday’s more overtly defensive bias in the currency market saw both the yen and euro perform well, the euro underperformed during the more mixed session on Tuesday.

That underperformance comes despite better-than-expected German Ifo figures released in European morning, which, as analysts have pointed out, was perhaps negated by dovish economic comments from the economic institute. From a technical perspective, the fact that EUR/JPY has not yet been able to rally towards previous support now resistance in the 129.50 area, or retest its 50-day moving average since falling below it, it is a downtrend. sign.

Many technicians, perhaps anticipating continued safe-haven demand for the yen as global risk appetite remains shaky amid Fed tightening and geopolitical risks, will point to an eventual test of December lows in the 127.50 area. NATO/Ukrainian/Russian tensions in Eastern Europe do not seem likely to abate any time soon, although as long as war does not break out imminently, there is a chance that markets will tire of the situation in the future. . weeks.

That could mean that central bank (Fed) tightening is the main threat to global risk appetite, which means that much of the short-term direction of EUR/JPY may be determined by the Fed’s event of Wednesday. For EUR/JPY to stabilize and recover to previous yearly highs in the 131.00s, a broader recovery in risk appetite will be needed (with US equities regaining a decent piece of ground lost recently) and a focus on the foreign exchange market will be needed. to recalibrate the central bank’s policy divergence. Here the story could be a long-term positive EUR/JPY, with the Eurozone facing much higher upside inflation risks and as a result likely to phase out monetary stimulus at a faster pace compared to Japan.

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