EUR/JPY plummets ahead of the ECB decision

• EUR/JPY last trades at 140.68, down 2.34% from the previous close.
• The pair trades between 140.61 and 144.98 during Wednesday's session
• The short-term vital events are Japan’s export/import/trade balance and ECB’s rate decision.

Daily price movements:

EUR/JPY sees a strong bearish intraday movement on Wednesday and trades slightly above the lowest intraday price of 140.61 – spectacularly below the highest intraday price of 144.98. The overall intraday price change stands at -2.34% at press time.

Key economic events:

Fear of contagion within the European banking sector causes the sharp decline in the Euro, after the news on Wednesday that Credit Suisse’s largest investor has pulled its support for the Swiss lender. 

The unexpected event, which follows on from the demise of Silicon Valley Bank over the weekend, suggests the European Central Bank (ECB) may be more accommodative at its monetary policy meeting on Thursday, March 16.

Previously economists had expected the central bank to raise interest rates by 50 basis points (bps) at the meeting to combat the effects of persistent inflation, however, given the risks this might cause to liquidity within the banking sector, it is more likely central bankers will opt for a smaller rate hike or none at all. 

This is causing the current steep sell-off in the Euro since higher interest rates tend to support currencies and lower to weaken them. This is due to the effect of the carry trade, in which global investors borrow in a currency with a low interest rate to purchase a currency with a high interest rate.

Preciently, economists at German lender Commerzbank raised the risks of contagion to the Euro in a recent analyst’s note, "From the market's perspective, the ECB has unexpectedly emerged as one of the most hawkish central banks, which could bolster the Euro as long as there are no contagion effects in the European banking sector." Said the bank’s research.

For Yen traders it is also essential to closely follow the Japan Exports/Imports/Merchandise Trade Balance (23:50 GMT) on Wednesday. The ECB Monetary Policy Decision Statement, meanwhile, is scheduled for release on Thursday at 13:15 GMT.

Technical View:

The EUR/JPY pair is falling steeply, and has been trading below its daily 20-SMA (143.94) and daily 50-SMA (142.12), signaling a bearish trend in the short to medium-term. The currency pair also fell below the 38.2% Fibonacci level at 143.69 and the 61.8% Fibonacci level at 143.25, suggesting further bearish pressure.

The daily RSI(14) of 38.974 indicates a bearish momentum as the pair trades below the 50 mark. However, the market may encounter some resistance, as the daily resistance levels are 144.80, 145.54, and 146.67.

The daily pivot point for the EUR/JPY pair stands at 143.66, which is significantly above the last intraday price at press time. The daily support levels are found at 142.92, 141.79, and 141.04. If the pair manages to break above the pivot point, it may test the resistance levels, while a break below the pivot point could trigger a test of the support levels.