EUR/JPY - Overnight volatility spikes ahead of the ECB

• EUR/JPY overnight ATM volatility jumped to 7-week high ahead of the ECB
• Overnight 25-delta risk reversals show Put bias is weakening

EUR/JPY rose to 134.50 on Wednesday; its highest level since November 2015. The currency pair has rallied more than 200 pips over the last one week, largely due to the uptick in the USD/JPY pair.

The overnight volatility gauge, which was depressed earlier this week, spiked to 12.70 on Wednesday; its highest level in 7 weeks. Meanwhile, the overnight 25-delta risk reversals gauge improved to -0.70.

The combination of spike in volatility and weakening put bias indicates the EUR/JPY cross is likely to remain well bid and may extend the rally towards 136.23 (Feb 2014 low) on the ECB day.

EUR/JPY Technical Levels

The pair was last seen trading at 134.26 levels. A break above 134.28 (61.8% Fib R of Dec 2014/June 2016 drop) would open doors for a rally to 136.23 (Feb 2014 low). On the downside, failure to hold above 134.00 (zero levels) could yield a pull back to 133.75 (Oct. 25 low on 1-hour chart).