EUR/JPY trading steady above 131.60 support, despite slight euro dip on dovish rhetoric

• EUR/JPY continued to trade within recent intra-day ranges on Tuesday, remaining support above January’s highs in the 131.60 area.
• The euro saw momentary weakness as ECB’s Villeroy pushed back against the post-ECB meeting market reaction.
• Ahead, the pair will be focus on US inflation data on Thursday for any read across to FX markets.

EUR/JPY has continued to trade within recent ranges on Tuesday, undulating between the 131.50-132.00 levels, meaning the price action has remained well contained within Monday’s 131.20-132.20ish ranges. FX markets continue to trade in a broadly subdued manner, with EUR/JPY happy to consolidate recent gains after its big post-hawkish ECB push to multi-month highs in the latter part of last week. For now, support in the form of the early January high at 131.60 continues to prove an attractive long entry point for intra-day speculators.

Recent comments from ECB governing council member and Bank of France head Francois Villeroy de Galhau, who said that last week’s post-ECB rate decision market reaction may have been too strong, resulted in momentary euro weakness. His comments come after a more measured tone on the prospect for monetary policy tightening from ECB President Christine Lagarde and other ECB policymakers this week, undermining the case for further short-term euro upside.

Nonetheless, as Eurozone yields continue to trade with an upside bias in tandem with their US counterparts and broader risk appetite remains resilient in the run-up to Thursday’s US consumer inflation report, EUR/JPY may remain supported in the short-term. Should the upcoming US inflation report surprise to the upside, subsequent Fed tightening fears could weigh on market sentiment and give the yen a boost, which could set EUR/JPY back later this week.