EUR/JPY eyes fresh 5.5 month low, risk reversals show limited downside scope

• EUR/JPY has breached the 200-day moving average (MA) support.
• Threatens to drop fresh 5.5 month low below 130.93.
• Risk reversals show limited scope for further sell-off.

Having breached the 200-day moving average (MA) of 131.23 earlier today, the EUR/JPY now risks printing a fresh 5.5 month low below Feb. 23 low of 130.93.

The cross was already on the back foot following rejection at the downward sloping (bearish biased) 10-day MA yesterday. The Bank of Japan's (BOJ) decision to trim the long duration JGB purchases today only added to the bearish pressure around the pair.

However, the EUR/JPY one month 25 delta risk reversals indicate low odds of a big sell-off below the 200-day MA. The gauge has erased a significant chunk of EUR put bias (bearish bets) over the last two weeks. As of writing, the risk reversals are being at 1.85 EUR puts vs. 2.85 EUR puts on Feb. 12.

The decline in the implied volatility premium of the puts indicates investors do not expect a dip below the 200-day MA to yield a deeper sell-off.

EUR/JPY Technical Levels

A break below 130.93 (Feb. 23 low) would expose support at 129.58 (200-week MA) and 129.27 (50-week MA). On the higher side, a move above 131.23 (200-day MA) could yield a corrective rally to 131.86 (10-day MA) and possibly to 132.18 (previous day's high).