EUR/JPY clings to 136.00 on progress in Russia – Ukraine negotiations and hawkish ECB

The EUR/JPY climbs in the North American session but is off from seven-year-highs, lifted by news from Russia’s – Ukraine front, emerged of a possible cease-fire between both parties, an advance in negotiations after two weeks of being stuck. At the time of writing, the EUR/JPY is trading at 136.24.

Russia and Ukraine negotiations improve, the market sentiment shifts positively

Risk appetite increased after Russia’s Medisnky said that talks had been constructive and Russia is taking two steps to de-escalate the conflict. Furthermore added that a Putin – Zelenskiy meeting could be possible. On the Ukraine front, the negotiator said that neutral status would entail not having foreign military bases.

Headlines lifted the market sentiment alongside the shared currency against most crosses, including the Japanese yen, which has been under much stress, courtesy of the Bank of Japan (BoJ).

On Monday, the BoJ decided to buy Japanese Government Bonds (JGBs) to achieve its Yield Curve Control (YCC) fixed 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 where it would be appropriate to start to normalize interest rates later this year. And then, of course, there are scenarios where it could be appropriate to move at a later point.” However, he added that “inflation will decline later this year and will be a lot lower next year and the year after compared to this year.”

The Eurozone economic docket featured the German Gfk Consumer Sentiment for April, which tumbled to -15.5, more than the -14.5 estimated. Also, German Import Prices for February fell in both annual and monthly readings.

With that said, fundamentally, the central bank policy divergence between the ECB and the BoJ would favor the shared currency. Nevertheless, it’s essential to notice that unless Russia and Ukraine achieve a truce and the conflict de-escalates, the Euro area will feel the pain of elevated energy prices, meaning higher rates of the ECB but at the 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 retreated 150-pips towards the 136.00 mark, on a downward move that seems to be profit-taking due to the steepness of the rally. However, the EUR/JPY buying pressure remains due to the size of Monday’s real-body of the candlestick, which is more extensive than the wick, suggesting that the JPY would continue losing vs. the EUR if the market sentiment improves.

That said, the EUR/JPY path of least resistance is upwards and would face its first resistance at 136.50. Breach of the latter would expose 137.00, followed by the YTD high at 137.54.

On the flip side, the EUR/JPY first support would be 136.00. Once cleared, the next demand zone would be March 29 low at 135.30, followed by March 25 134.74 daily high.