EUR/JPY drops below key Fib level as downside continues, now probing 200DMA just under 130.50

• EUR/JPY edged lower for a fifth time in the last six session on Thursday, dropping below a key 50% fib.
• The pair is now probing its 200DMA just to the south of the 130.50 mark.

Thursday was another down day for EUR/JPY, a fifth in the last six sessions, during which time the pair has dropped from above 132.50 to current levels around 130.50 (a 1.5% decline). On the face of it, Thursday’s 0.1% drop hardly feels significant, but from a technical perspective, things are more interesting, as the pair dropped below a key 50% Fibonacci retracement level between the summer lows just above 128.00 and the October high around 133.50.

EUR/JPY also seems to have cracked below its 50-day moving average (DMA) at 130.60, but faces significant opposition if it wants to continue to depreciate in the form of the 200DMA at 130.46, which also coincides with the late September high. Should the pair break below these next key levels of support, the door will be open for a run lower towards the next key fib level (the 61.8% retracement) at just above 130.00.

In terms of the fundamentals, there hasn’t been much to update on. Real and nominal yields in the Eurozone have seen a significant slide in recent weeks, and the subsequent shift in EZ/Japan rate differential in JPY’s favour explains a large part of the recent move lower. Risk appetite has also been somewhat ropey this week as a result of US inflation fears, benefitting the safe-haven yen. Some more localised Eurozone-related risks are also increasingly showing up on investors’ radars; amid a sharp spike in Covid-19 infections across the bloc, countries are mulling or even already enacting Covid-19-related restrictions. This will weigh on the Eurozone economy in Q4 2021/Q1 2022 and is likely to weigh on EUR/JPY.