EUR/JPY extends recovery above 121.00, could it test again 121.30?

• Euro gains momentum across the board as EUR/USD climbs on top of 1.1150. 
• Yen retreats as equity prices move off lows in Wall Street and US yields rise. 

The EUR/JPY pair is trading with modest losses for the day but remains near the weekly highs. Earlier today peaked at 121.36, the highest level in two weeks and then corrected lower, to 120.90. Then rose back above 121.00 and as of writing trades at 121.10. 

The Yen strengthened earlier today after the Bank of Japan meeting and also amid a deterioration in risk sentiment. The negative tone was reinforced from a tweet from US President Trump, mentioning there were no signs of China purchasing agricultural products from the US. As equity prices trimmed losses, EUR/JPY moved off lows. The DOW JONES is down 0.10%, far from the lows. 

Market participants ignored US data released today and are awaiting the outcome of the FOMC meeting. Also, on Friday, the official employment report is due in the US. All the mentioned events could trigger volatility in the currency market. 

The Bank of Japan today left unchanged its monetary policy, broadly in line with market expectations. Governor Kuroda mentioned that the BoJ expects the ongoing ultra dovish stance to continue for an extended period of time.

In Europe, the GfK German Business Index dropped to 9.7 in August and inflation in Germany (preliminary) rose more than expected in July. The CPI climbed 0.5% (vs 0.3%) and 1.7% from a year ago; while the core CPI came in below expectations showing an increase of 0.4% (vs 05.%). 

EUR/JPY Levels to watch 

On the upside, the critical level continues to be 121.30: a consolidation clearly on top would clear the way to more gains with an immediate target seen at 121.50. On the flip side, short-term support levels might lie at 120.90 and 120.70 (weekly low).