EUR/JPY bears lining up for further downside on risk-off flows

• EUR/JPY bears looking for further downside on risk-off flows. 
• A dovish Federal Reserve could strip the bid from the dollar and fuel safe-haven flows into the yen. 

EUR/JPY has continued to give background on Tuesday, falling from a high of 120.53 to a low of 119.41 and -0.39% on the day. The yen has been picking up belated risk-off bids, filling the offers vs G10-FX and resuing its usual safe-haven status. 

In the recent sessions, the yen had been behaving abnormally given the de-coupling to risk-off flows, although the blood bath this week in global equities pertaining to the heightened concerns over the contagion of the coronavirus has lead to an exodus of US assets and has ultimately triggered a buying spree in Japanese yen. 

EUR correction an opportunity to sell?

The euro, on the other hand, has also been on the front foot vs the greenback in a delayed reaction to a glimmer of relief from the German ZEW and IFO's surveys. However, what is concerning is how the super spreader virus is tallying up in numbers in Italy, Given Germany's close trade ties with China as well, and with the release of final German GDP data this morning confirming the absence of growth in the last three months of the year, the outlook for the bloc could be argued as compelling for a sell on rallies in the euro. 

"Exports in Q4 fell by -0.2% q/q meaning that net trade shaved 0.6 ppts from GDP growth. In the full year, Germany expanded by just 0.6% in 2019. This was the weakest growth rate since the Eurozone debt crisis in 2013," analysts at Rabobank noted.

Should the yen take up its status as a safe haven once again, perhaps if the US dollar continues to slide due to a dovish Federal Reserve, then bears will most likely looking for a key reversal of the late 2019 summer low to YTD highs.

EUR/JPY levels

The 2019 summer highs lows were down at 115.85 and the YTD highs are 122.87. We have already seen a 61.8% retracement target achieved of that range a 118.51 and a subsequent bounce. However, pressures are mounting again and a break below 118.50 could result in a resumption of the downside and broader 2018 bear trend.