EUR/JPY still stuck within a 126.00-127.00ish range

• EUR/JPY remains stuck within the same 126.00-127.00ish range it has been caught in since early December
• The pair is likely to continue to derive impetus from the unfolding Covid-19 situation and other global themes.

Since breaking above a key area of resistance around 125.00 in early December 2020, EUR/JPY has been caught within a 126.00-127.00 range. Price action so far in 2021 has confirmed that this is still the case; the pair found solid support just ahead of the 126.00 level during the early part of the US session and has since advanced back to roughly 126.30. On the day, the pair trades flat.

Looking ahead, preliminary Eurozone CPI numbers for December will steal the limelight for the pair on Thursday and are likely to show a Eurozone still in deflation (for a sixth month running). Meanwhile, Overall Household Spending numbers on Thursday and the Leading Economic Index on Friday out of Japan will be worth watching for JPY traders. Global risk appetite dynamics are likely to remain the main factors driving the pair, however.

Eurozone and Japan gripped by the pandemic

Both the Eurozone and Japan continue to struggle to contain the Covid-19 pandemic. Germany has this week announced an extension of its strict national lockdown to the end of the month, while most of the rest of the Eurozone continues with varying degrees of lockdown, and Japan is set to announce a state of emergency on Thursday. The Japanese government is also said to be mulling a halt of all foreign arrivals and a pause to business travel with South Korea and China.

While the near-term economic activity is set to remain under pressure from the high prevalence of the virus and lockdown restrictions in both regions, the Eurozone has a lead over Japan when it comes to vaccination; the Eurozone started administering the Pfizer/BioNTech vaccine at the end of December, while Japanese PM Yoshida Suga said on Monday that the vaccine would not be available in Japan until the end of February.

Rangebound EUR/JPY

A break below the bottom of EUR/JPY’s recent range at 1.2570-1.2600 would open the door for a move back towards a test of October and November 2020 highs around 125.00. Conversely, a break above recent highs just above the 127.00 level would open the door to a move higher towards two-year highs above 128.00.

EUR/JPY 12 hour chart