EUR/JPY: Two-day sell-off pauses, risks remain skewed to downside
- EUR/JPY bears are taking a breather, having engineered a 120-pip drop in two days.
- The single currency looks south with inflation falling across Eurozone.
- Risk-off could boost demand for yen and add to downside pressures around EUR/JPY.
EUR/JPY is currently sidelined near 123.85, having declined by over 0.4% for the second straight day on Tuesday.
The pair's retreat from 125.00 to 123.80 seen over the past two trading days has neutralized the bullish outlook put forward by Friday's breakout above the descending trendline connecting Sept. 1 and Sept. 10 highs.
Besides, macro factors seem aligned in favor of the EUR bears. The German core inflation is heading toward zero, as noted by Jeroen Blockland, Portfolio Manager for the Robeco Multi-Asset funds.
That is likely to put pressure on the European Central Bank (ECB) to provide more stimulus. The talk of additional ECB easing has gathered steam over the past few weeks in response to the negative Eurozone inflation print.
What's more, many Eurozone nations are currently experiencing a second wave of the coronavirus.
Meanwhile, the anti-risk Japanese yen will likely draw bids during the day ahead if stock markets in Asia and Europe track the US equities lower. Wall Street suffered losses on Tuesday on deadlock in Washington over the fiscal stimulus deal.
On the data front, the focus will be on the Eurozone Industrial Production. Speech by the ECB President Lagarde and other policymakers could also offer cues to traders.
Technical levels