EUR/JPY recovers from the 240-pip drop and reclaims 128.00 ahead of the ECB meeting

On Wednesday, the EUR/JPY rallied around 240-pips and pared its weekly losses amid a risk-on market mood spurred by developments in the Russia-Ukraine conflict. At the time of writing, the EUR/JPY is trading at 128.31, as the Asian Pacific session kicks in.

Geopolitical headlines remain grabbing investors’ attention of late. On Wednesday, a risk-on market mood, originated by two headlines, mentioning that Ukraine would not join NATO, alongside a statement by Ukraine’s Deputy Chief of Staff saying that Ukraine is ready for a diplomatic solution, without trading a “single inch” of their territory.

Following that, the euro rallied vs. most G8 currencies. Why? Market players assess the chance of a cease-fire between Russia-Ukraine; however, the Russian posture remains what initially demanded, so the EUR rally in the last two days seems to be linked to profit-taking ahead of the ECB monetary policy meeting.

That said, market participants expect that the ECB will confirm the end of the PEPP by the end of March and that the APP will continue beyond as needed. Messaging is expected to reinforce flexibility, though the Russia-Ukraine war woes and their direct implications for the Euro area could trigger a dovish message by ECB’s President Christine Lagarde.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY reclaimed above the bottom-trendline of a descending channel drawn since August 2021, though faces strong resistance at January 25 daily high at 128.25. Worth noting that the 50-day moving average (DMA) is about to roll under the 100-DMA, in which case, the DMAs would be in a perfectly bearish order, further cementing the downward bias.  

That said, the EUR/JPY first support would be 127.51, December 20, 2021. Breach of the latter would expose the bottom-trendline of the descending channel around the 126.90-95 area, followed by 125.09, January 18, 2021 low.