EUR/JPY: Mildly offered below 129.00 after ECB, BOJ plays are over, for now

• EUR/JPY extends pullback from monthly top, snaps two-day uptrend.
• Hawkish ECB contradicts BOJ’s inaction but sluggish markets seek solace in yen.
• Market sentiment dwindles amid fresh fears over Omicron, US-China tussles.
• Second-tier German, Eurozone data will offer intermediate moves.

EUR/JPY remains pressured after failing to keep the ECB-led gains, down 0.09% intraday on Bank of Japan’s (BOJ) inaction during early Friday.

That said, the BOJ matches wide market forecasts to leave the current monetary policy unchanged, holding a short-term rate target at -0.1% and that for 10-year bonds yields around 0%. It should be noted, however, that the BOJ decided to scale back pandemic stimulus upon reaching March 2022 deadline. Following the news, the Japanese yen (JPY) portrayed mild gains even if those had more to do with the risk catalyst.

Read: BOJ: Will gradually slow pace of bond buying to pre-pandemic levels after April 2022

On the contrary, the European Central Bank (ECB) marked hawkish performance by signaling an end to the Pandemic Emergency Purchase Program (PEPP) in March 2022, also expansing Assets Purchase Program (APP) to €40 billion per month in Q2 and to €30 billion in Q3 2022.

The cross-currency pair portrays a cautious mood in the market while having fewer positives to cheer from the BOJ.

To portray the mood, US Treasury yields remain pressured while the S&P 500 Futures drop 0.20% intraday by the press time.

Behind the risk-off mood could be the headlines concerning the South African covid variant, China and US stimulus.

Talking about Omicron, Australia marks the covid vaccination milestone of 80% but the recent spread in virus variant pushes authorities to introduce tougher activity restrictions in Queensland. Elsewhere, the UK, unfortunately, reports the second consecutive day with all-time high daily covid infections, recently up by 88,376. It’s worth noting that US President Biden earlier mentioned that Omicron is going to start spreading more rapidly. On the contrary, French President Emmanuel Macron said, “I will make COVID-19 decisions based on hospitalizations.”

On a different page, the US Senate that rejected a Democratic proposal over immigration, which in turn stopped the President’s BBB aid package. Even so, Biden sounds optimistic to get the much-awaited stimulus passed soon. Additionally weighing the Aussie pair were comments from the Chinese Ambassador who conveyed dislike for the US actions against Chinese entities over Xinjiang-related issues.

It’s worth noting that optimism surrounding Brexit, a halt in US-Iran nuclear talks and the European union’s push for Russia's sanctions over the Ukraine issue are other geopolitical issues that weigh on the sentiment.

Looking forward, revision of the Eurozone Consumer Price Index for November and German IFO figures for December will entertain EUR/JPY traders. Ahead of them, a press conference by the BOJ Governor Haruhiko Kuroda will be important. Above all, risk catalysts are crucial to follow.

Technical analysis

A clear upside break of 20-DMA, around 128.40 by the press time, will direct EUR/JPY towards a downward sloping resistance line from late October, near 130.00.