EUR/JPY: On defensive around 131.00 as covid concerns probe bulls

• EUR/JPY fades bounce off intraday low amid subdued session.
• Market sentiment dwindles as coronavirus woes jostle with economic optimism at Europe.
• Japan extended covid emergency in Tokyo, up for issuing vaccine passports.
• German inflation data, virus updates are crucial to follow for fresh impulse.

EUR/JPY eases below 131.00, down 0.05% around 130.85, amid the initial hour of Tokyo open on Tuesday. The pair rose during the last two days before easing from the weekly top of late. The reason could be traced to the coronavirus (COVID-19) concerns as well as a lack of major directives in Asia.

Although the Japanese government is ready to allocate free-of-cost vaccine passports and a “no-spectator Olympics”, the covid woes in the Asian major are a matter of worry. The same push the policymakers to extend Tokyo’s virus-led emergency as prefectural governors push for more vaccinations and criticize holding sports carnival amid the pandemic at home.

Elsewhere, Australia registers the most covid numbers since September whereas Malaysia, Indonesia and Thailand are among the worst-hit countries from the deadly virus of late.

On the contrary, the Euro’s (EUR) comparative strength, on the back of the hawkish ECB and upbeat fundamentals, favors EUR/JPY buyers. On Monday, ECB President Christine Lagarde said, “People should be prepared for the next ECB meeting to provide new guidance on the path forward for policy over the coming year.”

Amid these plays, S&P 500 Futures struggle around record top while Japan’s Nikkei 225 adds 0.65% by the press time.

Moving on, Germany’s headline inflation report for June, Harmonized Index of Consumer Prices, expected to confirm 2.1% YoY preliminary forecasts, will be important to watch amid the ECB’s tapering concerns. However, the covid updates become crucial for near-term direction. Above all, this week’s Bank of Japan (BOJ) monetary policy meeting keeps USD/JPY traders on edge.

Read: BOJ Preview: Yen has room to (temporarily) fall on downgraded outlook, worrying virus state

Technical analysis

Despite bouncing off the late April lows during the last week, EUR/JPY bulls need to cross the 100-DMA level of 131.15 to challenge the monthly resistance line near 131.60. Meanwhile, a daily closing below the 130.00 threshold will recall the bears.