The common currency is heading south for the third consecutive day against the Japanese yen on Monday. The pair is extending its reversal from last week’s highs at 133.50 area, to levels right below 132.00.
The moderate risk appetite witnessed at the week opening, with most equity markets posting gains, has not been enough to lift the euro. The pair remains weighed by rising inflation concerns, ahead of the European Central Bank’s monetary policy meeting, whose conclusions will be released next Thursday.
The next ECB meeting has gathered higher interest for the investors, with inflation pressures rising to levels difficult to ignore. The bank, however, is widely expected to maintain its commitment to the ultra-loose policy and keep its message on the dovish side to avoid creating tensions in peripheral markets. With the rest of the banks starting to set the stage for policy normalization, this will weigh on demand for the euro.
The pair is now testing support at 131.80 (61.8% Fibonacci retracement of the May-August decline) Below here, the pair could extend its reversal towards 131.25 (October 11, 12 highs) and then the 100-day SMA at 130.40.
On the upside, the pair should return above 132.80 (October 22 high) to retest October 21 high at 133.50 on track to 2021 highs at 134.00.
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