EUR/JPY clings to upbeat Eurozone PMI-led gains, holds above 126.00 mark

• EUR/JPY staged a solid intraday bounce from two-week lows on upbeat Eurozone PMI prints.
• A strong pickup in demand for the Japanese yen kept a lid on any further gains for the cross.
• A sustained move beyond the 126.55-60 is needed to increase prospects for additional gains.

The EUR/JPY cross rallied around 50 pips during the early European session and refreshed daily tops, around the 126.20 region, albeit lacked any follow-through.

Following an early dip to the 125.70 region, or two-week lows, the cross witnessed a dramatic turnaround in reaction to the better-than-expected release of German PMI prints. In fact, the flash version of the German Manufacturing PMI unexpectedly rose to 58.6 in December and surpassed consensus estimates pointing to a fall to 56.4 from 57.8 previous.

Adding to this, the Eurozone manufacturing PMI jumped to a 31-month high level of 55.5 during the reported month and helped counter a contraction in the services sector activity. This, in turn, provided a strong lift to the shared currency and was seen as one of the key factors that assisted the EUR/JPY cross to attract some dip-buying at lower levels.

Bulls, however, seemed struggling to capitalize on the goodish intraday positive move amid a strong pickup in the Japanese yen, supported by the heavily offered tone surrounding the USD. That said, the latest optimism over the COVID-19 vaccine rollouts could undermine demand for the safe-haven JPY and extend some additional support to the EUR/JPY cross.

Meanwhile, it will still be prudent to wait for some strong follow-through buying beyond the 126.55-60 supply zone before positioning for any further appreciating move. The EUR/JPY cross might then aim to surpass August monthly swing highs, around the 127.05-10 region, and aim to test the next major hurdle near mid-127.00s, touched in March 2019.

Technical levels to watch