EUR/JPY bulls are facing a wall of resistance in attempts to breakout

• EUR/JPY bears have been in control as oil prices skyrocket, but the euro is starting to stablise. 
• Bulls are facing a wall of resistance and the price is moving back into support. 
• ECB will meet this week with no changes expected. 

EUR/JPY has been on the backfoot at the start of this week as the euro fell for the biggest three-day drop in two years as the price of oil takes to the moon. Due to the contagion of the invasion of the Russian Ukraine, there are going to be serious questions about Europe’s energy security for the European Central bank that meets this week.

A few weeks ago, market chatter had been around the potential for a shift in policy at the bank. However, the economic implications for the eurozone will most likely see the ECB stay on a path of maximum flexibility at this juncture. Therefore, no changes are to be expected. 

ECB will be taking into account oil prices

The price of oil has been a head turner and a major factor in the euro's decline. The world economy is based on $100bbls oil and it was not imagined that we could be seeing the likes of $130 or the risks of even double for what central banks had been accounting for. For Europe, Russia is a key provider of energy and provides 25% of the EU's crude and 40% of its natural gas. 

However, the EU has agreed to phase out dependency on Russian energy according to an EU draft statement from a summit. The Biden administration is also willing to move ahead with a ban on Russian oil imports into the United States even without the participation of allies in Europe. UK oil hit a high of $138 this week. 

Overall, the euro is expected to stay on the back foot due to the divergence between the ECB and Federal Reserve. This puts a focus on EUR/USD below 1.0800, consequently, leaving EUR/JPY vulnerable to further declines. However, at this particular juncture, the euro is accumulating a bid in what might be considered a bargain by short term intraday traders seeking to cash in shorter-term moves in the euro. 125.00/20 is going to be a key support area for the cross. 

EUR/JPY H1 chart

As drawn above the price is on the verge of a test into the support area which would be expected to equate into an M-formation, potentially leaving the price in consolidation for the day ahead.