EUR/JPY remains supported above the 131.50 area

• EUR/JPY pulled back from previous highs above 132.00 with ECB’s Lagarde sounding more cautious.
• However, the pair remained decently supported above the key 131.50 level, an area that may continue to offer support this week.

The EUR/JPY stabilizing above a key support level at 131.50 on Monday, after hitting fresh three-month highs above 132.00 earlier in the session. In the wake of her aggressive news conference after last week’s ECB meeting that sent the euro tumbling higher against its G10 counterparts, President Christine Lagarde struck a more measured tone on Monday. This helped EUR/JPY retrace from previous session highs and has calmed calls for an imminent test of Q4 2021 highs in the mid-133.00s.

For reference, Lagarde gave additional dovish context to last week’s aggressive turnaround. He went on to hint that a rate hike in 2022 was a possibility, noting that the ECB could revise its inflation forecast upwards to stay above 2.0% by the end of the year. However, he stressed that there would be no need for further policy tightening, given that inflation is expected to stabilize near 2.0% in the medium term. Rather, he emphasized, it would just be a normalization of policies.

EUR/JPY traders will not focus on ECB Chief Economist Philip Lane’s speech on Thursday. Like Lagarde, Lane has consistently underestimated inflation in recent months and until very recently pushed the idea that it would end 2022 below 2.0%. Now that Lagarde has dropped that stance, Lane probably has too. So a more hawkish Lane should come as no surprise, but could still continue to offer EUR/JPY support this week, with BoJ policymakers expected to remain as dovish as ever. That could imply the pair remains supported above support at 131.50 this week, barring a catalyst for safe haven assets benefiting the yen.

Technical levels