EUR/JPY rebounds into mid-135.00s as euro benefits from hot EZ inflation, hawkish ECB rhetoric

• EUR/JPY rebounded into the mid-135.00s as the yen suffered from higher yields and the euro benefitted from hot EZ inflation. 
• ECB rhetoric was also notably more hawkish and, as a result, short-term EUR/JPY bulls are eyeing a retest of 137.00. 

EUR/JPY rebounded back into the mid-135.00s on Friday as higher yields, particularly in the US weighed on the rate-sensitive yen and positive Russo-Ukraine rhetoric, hot Eurozone inflation and hawkish ECB commentary supported the euro. The pair, which hit lows in the 134.50 area during the Asia Pacific session, now trades with on-the-day gains of about 0.5% in the 135.30s. From a technical standpoint, recent price action isn’t particularly notable, with the pair merely swinging within this week’s already well-established ranges.

With recent hot Eurozone inflation figures and increasingly hawkish sounding rhetoric from ECB members suggesting upside risks to Eurozone yields in the week ahead (lots of focus will be on the ECB minutes release on Thursday) many short-term bulls will be hoping that Friday’s recovery is the start of a more lasting move higher back towards this week’s highs in the 137.00 area. Geopolitical developments could make or break EUR/JPY’s short-term bullish prospects, with market participants waiting with abated breath to hear how Friday’s virtual Russo-Ukraine peace talks went.

Another geopolitical risk that EUR/JPY traders should be watching is the ongoing saga relating to Russia’s demands for rouble payments for gas exports. Any signs that Russia might cut gas to the Eurozone would be a big negative for the euro, as such an eventuality would quickly thrust the bloc’s economy into a deep recession amid energy rationing. Things don’t look like they are heading that way at the moment, so for now, EUR/JPY can maintain an upside bias.