EUR/JPY holds above key short-term support at 131.50 ahead of Lagarde speech

• EUR/JPY held above last week’s lows around 131.50 after bouncing from its 21DMA on Tuesday.
• ECB President Lagarde delivers a speech on Wednesday that could be market moving.

Ahead of the close of Tuesday FX market trade, EUR/JPY has been able to remain supported above last week’s lows in the 131.50 region. Early on during Tuesday’s European session, the pair was probing the recent lows, but after briefly touching its 21DMA (at 131.47 at the time, now at 131.53), buyers came in to push the pair back towards the 132.00 level, where is has spent most of the rest of the session trading.

There isn't much by way of important European or Japanese economic or central bank events for the remainder of the week, aside from a speech at 1015GMT on Wednesday from ECB President Christine Lagarde. In wake of last week’s ECB meeting, EUR rate markets saw further hawkish repricing (futures markets point to roughly 60bps worth of tightening by the end of 2022), after markets deemed Lagarde’s pushback against the idea of rate hikes in 2022 as insufficiently dovish. She may want to use the speech to rectify that mistake and send a more clear cut message that, in light of the ECB’s recently adopted strategy review which saw the bank raise its inflation target to a 2.0% symmetric one from “close to but just below 2.0%”, the ECB will not be hiking interest rates in 2022.

Otherwise, EUR/JPY is likely to be left to trade off of global dynamics; Wednesday’s Fed meeting, Thursday’s BoE meeting and Friday’s US October labour market report will be the main events to watch. Any signs that these events are giving a boost to long-term US and European bond yields could broadly weigh on JPY and could thus help propel EUR/JPY back towards last week’s highs close to 133.00. Conversely, if support at 131.50 does go, that could open the door to a move lower the next area of support at 130.70 (the 3 September high) and the 50DMA at 130.40. However, if US (and global) equities remain as well supported as they currently are, it seems unlikely that the safe-haven JPY will be able to muster sufficient strength for such a move.