EUR/JPY falls to 2-month low as Russia attacks Ukraine

Russia invading Ukraine has sent risk sentiment plunging lower, lifting demand for safe havens such as the Japanese yen. Putin authorized a special military operation in Donbas, Ukraine triggering risk aversion across the financial markets

The EUR/JPY has tumbled 1.3% so far today and is one on the worst performing pairs. This is due to the combination of euro exposure to Russia and safe haven inflows to the Japanese yen.

Europe is heavily reliant on Russian energy, should Russia slow supply this could have a negative impact on growth in Europe and a huge economic toll. Furthermore, many European banks have high exposure to Russia.

Russia is the Eurozone’s fifth largest trading partner.

Concerns are growing that the situation in Ukraine will prompt the ECB to hold back on tightening monetary policy this year. Greek central bankers Yannis Stournaras has already called for the ECB to continue quantitative easing as the situation escalates.

These latest developments have overshadowed comments from ECB vice president Luis de Guindos who sounded more hawkish.

Broader risk sentiment is likely to remain the key driver for the pair with investors set to focus on Russia, Ukraine headlines.

Where next for EUR/JPY?

EUR/JPY has been steadily trending lower over the past 2 weeks, falling 2.7% whilst taking out the 50 and the 100 sma.

The 50 sma is crossing below the 100 sna in a bearish signal and the RSI suggests that there is more downside to come, whils it remains out of oversold territory.

Support is  seen at 127.92, a level which has offered support on several occasions over the past year. A break below this level could open the door to 127.40 the December low. A break below here would be significant and could see sellers gain traction.

On the flipside, any recovery would need to be aiming for 130.00 the psychological level as well as the 50 & 100 sma. Before here some resistance could be seen around 129.40