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EUR/JPY fights for 200-day moving average

Volatility will likely remain elevated, despite the ongoing Christmas holiday period.

The EUR/JPY cross remained pressured today, mainly because of the strengthening Japanese Yen, which received a colossal boost yesterday.

German data improve slightly

According to the forward-looking index produced by the GfK institute on Wednesday morning, Germany’s consumer mood is expected to increase slightly in January.

The indicator came in at -37.8, representing a tiny but progressive improvement from the revised -40.1, recorded the previous month, and October’s -42.8, the lowest level in more than a decade, as national energy steps helped improve sentiment.

“Consumer confidence remains well below its long-term average but is now slightly above the trough reached at the onset of the COVID-19 pandemic,” the European Commission noted in its publication.

This follows statistics released earlier this week revealing that German business sentiment increased more than anticipated in December, with the Ifo institute saying that the prognosis for Europe’s largest economy has brightened despite the oil crisis and rising inflation.

“German business is entering the holiday season with a sense of hope,” the think-tank wrote in a release accompanying its report on Monday.

BoJ continues to dominate the headlines

On the JPY side, the market is still recovering from yesterday’s big surprise, which sent the Japanse Yen sharply higher. The USD/JPY pair cratered 4% in one of its largest declines in history.

Today, the Bank of Japan (BoJ) initiated an announced operation to purchase bonds. Thus, the Japanese central bank offered to purchase Japanese Government Bonds (JGBs) worth ¥200 billion, comprising ¥100 billion in 3-5 Year’s maturity and ¥100 billion in 5-10 Years’ maturity.

You can also read: NZD/USD rejected major resistance – what’s next?

In a statement published on Wednesday, Ranil Salgado, the head of the International Monetary Fund’s (IMF) mission to Japan, hailed the Bank of Japan’s (BoJ) unexpected modification to the rates band as a prudent move.

“Providing clearer communications on the conditions for adjusting the monetary policy framework would help anchor market expectations and strengthen the credibility of the Bank of Japan’s commitment to achieving its inflation target.”

More importantly, Takatoshi Ito, a potential successor to Bank of Japan (BoJ) Governor Haruhiko Kuroda, stated that the central bank’s policy adjustment to the yield curve control (YCC) might be the initial step toward a withdrawal from its ultra-loose monetary policy.

“The shock move on Tuesday to widen the bond yield band is a “positive development” that would improve the functionality of the Japanese government bond market,” he added.

Technically speaking, EUR/JPY has dropped to its 200-day moving average (the blue line) at around 140 for the first time since August. Last time, it was a perfect buying opportunity. However, this time, we might see a breakdown below that level, likely leading to a start of a more meaningful downtrend, targeting the 135/136 zone.

EURJPY daily chart

EURJPY daily chart, source: author´s analysis, tradingview.com

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