EUR/JPY unable to sustain rally above 128.50, as cautious trading conditions prevail ahead of ECB, BoJ meetings

• EUR/JPY has reversed lower again from a test of the 128.50 level and is back to the 128.00 area.
• The pair is tentative ahead of ECB and BoJ rate decisions as well Eurozone flash PMIs and Japan Industrial Production.

EUR/JPY has reversed lower again from a test of the 128.50 level earlier in the session and is back to trading close to the 1.2800 level. The pair ran into resistance in the form of its 21-day moving average which sits just above 128.60 and this unsurprisingly acted as a ceiling to the price action, given that traders have expected FX markets to trade with a lack of conviction ahead of key events later in the week. These include the looming ECB and BoJ rate decision on Thursday and Friday, as well as the release of Eurozone, flash PMIs for December and Japan Industrial Production data for October.

Ahead of these risk events, EUR/JPY is likely to continue to struggle to find meaningful direction. The 128.50 area is likely to continue to cap the price action and recent lows around 1.12750 to the downside are likely to act as a floor. In the scenario that 128.50 and the 21DMA just above it are broken, last week’s high at 129.00 is the next area to look at for resistance. Meanwhile, any break below 127.50 would be significant as it would mean EUR/JPY was back to its lowest levels since February. Given a lack of immediate support, a swift move towards the 125.00 area could be on the cards.