EUR/JPY bulls move in trying to catch a falling knife

• EUR/JPY bulls looking for a retracement to 130.20 in the sessions ahead. 
• US dollar is exceptionally strong as fundamentals play out in favour of the bulls. 

EUR/JPY has started to resurface after a whitewash across the forex board as a tsunami of USD bids took down the single currency earlier in the day. At the time of writing, EUR/JPY is trading with its head back above water at 129.81 and is up 0.08%. It has come up from a low of 129.62 after sliding from 130.11 the high.

The euro fell to a new 16-month low versus the dollar on Tuesday, extending recent losses made on Monday after dovish comments from European Central Bank President Christine Lagarde. The euro was pressured further amid growth concerns and a surge in COVID-19 cases. It also suffered a surge in the greenback that rallied to the highest levels since June 2020, reaching as high as 95.899. This sank EUR/USD to as low as 1.1319 in the last hour of trade, (by 17.50 GMT).

US Retail Sales were the final straw

The US dollar rallied to a fresh 16-month high as US yields took off on the back of impressive data and hawkish Federal Reserve speakers. US data showed US consumers looked past rising prices and drove Retail Sales higher than expected last month. US Retail Sales rose 1.7% in October, topping consensus expectations of a 1.4% rise.

However, there is some speculation that the data was stronger due to the holiday season approaching and fears of higher prices. Americans may have also started their holiday shopping early to avoid empty shelves amid shortages of some goods as the ongoing pandemic squeezes supply chains. Nevertheless, the data was in the harmony with the inflationary pressures.

The dollar has been bid event since US inflation data last week showed consumer prices surged to their highest rate since 1990. This has led to sentiment in the markets that the Federal Reserve will have to curtail QE at a faster pace and potentially even hike interest rates sooner than first anticipated in the markets.  

Additionally, covid in the US is seen to be less of a risk than in Europe again. COVID-19 is also surging there again which is causing some countries to contemplate lockdowns already. This, coupled with European Central Bank President Christine Lagarde saying that tightening monetary policy now to rein in inflation could choke off the euro zone's recovery, have both weighed on the outlook for the single currency. 

EUR/JPY technical analysis

Meanwhile, the bulls are attempting to catch a falling knife:

The price is in a strong downtrend, although there are prospects of a significant and healthy correction towards the 38.2% Fibonacci retracement level near 130.20.