EUR/JPY rallies back into 156.00 on Thursday after midweek plunge

• The EUR/JPY recovered ground to pare back some of Wednesday’s losses.
• ECB’s President Lagarde leaned into data dependency, sees inflation at 1.9% by end of 2016.
• Eurozone PMIs slated for Friday, markets forecasting tentative gains

The EUR/JPY climbed back into the 156.00 handle in Thursday’s chart recovery sparked by an on-balance European Central Bank (ECB) that managed to strike an on-balance message that didn’t lean too heavily into either hawkish or dovish territory. ECB President Christine Lagarde noted that the ECB’s current projections were made ahead of a run of softer-than-expected Consumer Price Index (CPI) figures, and ECB policymakers will be taking a fresh look at overall Eurozone inflation before making any final decisions on policy changes.

A middling ECB gave the Euro (EUR) just enough leeway to recover ground lost against the Japanese Yen in Wednesday’s plunge that took the EUR/JPY into fresh lows for the week near the 154.00 handle.

Read More: Lagarde explains decision to keep rates unchanged, comments on policy outlook

Money markets are currently pricing a 50% chance of a rate cut at the ECB’s March meeting, with expectations that the ECB’s main reference rate will be cut to around 2.4% by the end of 2024, compared to the current level of 4.5%.

The ECB may not be quite ready to meet markets in the middle on rate cuts; reporting by Bloomberg, citing anonymous sources, suggests that the ECB is further from discussing rate cuts than the market might be willing to accept. According to ECB President Lagarde, rate cuts weren’t even discussed at their latest policy meeting.

Eurozone Preliminary Purchasing Managers’ Index (PMI) figures for December are due on Friday, and markets are expecting a slight recovery in the figures. 

The Eurozone HCOB Composite PMI for December is forecast to come in at 47.6 versus November’s 48.0, an improvement but still in contractionary territory. The HCOB Manufacturing PMI is forecast to print at 44.6 versus the previous 44.2, while December’s Services PMI is expected to improve from 48.7 to a flat 49.0.

EUR/JPY Technical Outlook

Thursday’s EUR/JPY rally brings the pair back toward the 50-hour Simple Moving Average (SMA), with the 200-hour SMA capping off any near-term bullish extension beyond the 157.00 handle.

The pair is still off of recent highs after failing to capture the 157.50 price level on Wednesday, and the pair is still down nearly a full percent from Wednesday’s peak at 157.48.

Things are looking notably more bullish on the daily candlesticks, despite a fierce backslide from November’s peak bids near the 164.00 handle. The pair is down nearly seven percent peak-to-trough from November’s fifteen-year high, with the 160.00 major handle proving to be a tough technical barrier, but Thursday’s bounce sees the pair EUR/JPY setting up for a technical rebound after getting rejected from the 200-day SMA rising from 154.00.

EUR/JPY Hourly Chart

EUR/JPY Daily Chart

EUR/JPY Technical Levels