EUR/JPY drops to two-week low near 121.50 ahead of ECB

• EUR/JPY shows more reaction to the risk aversion than second-tier Japanese data.
• The global trade headlines, China’s coronavirus and US President Trump’s impeachment grab the headlines.
• ECB isn’t expected to offer any fireworks but the President’s press conference will be the key to watch.

EUR/JPY remains under pressure, around 121.60 currently, after posting the two-week low of 121.52 during the early Asian session on Thursday. The pair bears the burden of the Japanese yen’s safe-haven demand ahead of the key European Central Bank (ECB) monetary policy meeting.

In addition to the Chinese outbreak of coronavirus, the recent threat to the European Union’s (EU) exports, from US President Donald Trump, also contributed to the pair’s declines. Furthermore, the US-China trade future is also in limbo, despite signing up of the phase-one deal, as no timeline is set for the phase-two deal talks. It’s worth mentioning that geopolitical risks emanating from the Middle East and US President Donald Trump’s on-going impeachment hearings also tame the risk-tone.

That said, the US 10-year treasury yields drop two basis points (bps) to 1.753% whereas the S&P 500 Futures stay unchanged near 3,320 by the press time.

While focusing more on the qualitative catalysts, the pair ignored downbeat trade numbers from Japan. The recently released Japanese Merchandise Trade Balance for December slipped below ¥-150 B to ¥-152.5 B. Additional details suggested that the Imports and Exports during the same month dropped more than -3.4% and -4.2% respective forecasts to -4.9% and -6.3% YoY in that order.

Traders will now focus on the monetary policy meeting by the ECB wherein the regional central bank is neither expected to alter the -0.5% Deposit Rate nor the 0.0% Interest Rate. However, press conferences by President Christine Lagarde might offer clues for future action. In this concern, Wells Fargo said, “We still think ECB easing is possible, but the key difference now is that the ECB will likely hold rates steady unless the data worsen materially, whereas previously the central bank appeared to be leaning toward easing unless the data showed signs of improvement. Thus, we will be calibrating our ECB view carefully in the coming weeks and months, and could revert back to an ECB rate cut if the data worsen.”

Technical Analysis

Sellers will look for entry below 20-day EMA near 121.55 while buyers are less likely to step-in unless EUR/JPY prices refresh the monthly high.