EUR/JPY consolidates above 128.00 amid quiet start to central bank dominated week

• In a subdued start to the week, EUR/JPY consolidated within thin ranges just to the north of 128.00.
• The lack of conviction isnt overly surprising given the looming ECB and BoJ rate decision on Thursday and Friday.
• Ahead of these events, the pair could also be volatile on any further swings in risk appetite.

It was a subdued start to the week for EUR/JPY, with the pair consolidating within thin ranges just to the north of the 128.00 level. The lack of conviction isn't overly surprising given 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, it would be surprising to see EUR/JPY find meaningful direction. Traders will thus be looking to resistance in the 128.50 area to cap the price action and to recent lows around 1.12750 to act as a floor. Should 128.50 be broken, there is the 21-day moving average at 128.70 just above it and then last week’s high at 129.00 to act as resistance.

One thing to keep an eye out for ahead of these key macro events later in the week would be if Wednesday’s Fed meeting or any Omicron-related developments spurred a broad shift in the market’s appetite for risk. It seems that the risks here tilt to the downside (perhaps the Fed spooks markets by being too hawkish, or lockdown fears are rekindled), which arguably means the risks to EUR/JPY lay to the downside also. Out of the two currencies, the yen is seen as more of a safe haven.

Indeed, the 127.50 level is highly significant and a break below it would see EUR/JPY hit its lowest levels since February. Given a lack of immediate support, a swift move towards the 125.00 area could be on the cards if this was to be the case.