EUR/JPY reclaims 118.00, seems to extend the recovery momentum

For the time being, global risk-on trade has kept sharp declines for the EUR/JPY cross under check, with the pair now reattempting to build on to its recovery strength above 118.00 handle.

The cross last week dropped to a multi-month low as uncertainty surrounding Brexit referendum boosted the perceived safety of the Japanese currency. The pair, however, has managed to recover from lower levels on receding Brexit fears after recent poll results showed 'Remain' camp regaining support, reducing demand for safe-haven assets - like gold, treasuries and Yen.

On Tuesday, the pair initially rose beyond 118.50 following the release of upbeat reading of the German ZEW economic sentiment for June that printed the highest level since August 2015 and came-in at 19.2, surpassing even the most optimistic expectations. The up-move, however, got sold into after the ECB President Mario Draghi raised concerns over low inflationary (deflationary) environment and showed central bank's readiness for additional stimulus measures.

Although the shared currency remained well bid, a broadly weaker greenback is extending support to Japanese currency and restricting any meaningful recovery for the EUR/JPY pair. However, any further movement away from safe-haven assets would provide the required momentum that should assist the pair to extend its recovery trend.

Technical levels to watch

From current levels, 118.60-65 area, closely followed by 119.00 round figure mark seems to act as immediate resistance levels. Strong recovery momentum above 119.00 handle might trigger a near-term short-covering rally, lifting the pair beyond 120.00 psychological mark, towards testing 20-day SMA resistance around 120.50-55 region.

On the flip side, should the pair lose momentum and drop back below 117.50 immediate support, it could be headed back below 117.00 level support towards 116.50-30 support area.