EUR/JPY: Downside momentum would be reinforced if euro finally corrects lower –  MUFG

Analysts at MUFG Bank, continue to hold onto the idea of a short trade in EUR/JPY with a target at 122.80 and stop-loss at 127.20, after entering at 125.30. 

Key Quotes:

“EUR/JPY has broken lower over the past week as the JPY has strengthened more broadly. The stronger JPY is testing the new leadership in Japan who have signalled that they want to maintain policy continuity and FX stability. It was backed up by comments from the BoJ as well who stated that they will continue to work closely with the government. Market participants will be watching to see how they respond to a stronger JPY. New Prime Minister Suga is scheduled to speak with President Trump over the weekend which will attract market attention given his lack of experience in foreign policy to date. At the same time, the ongoing dovish shifts in major central bank policy are diluting the negative impact on the JPY from BoJ’s own easing and helping to reverse JPY weakness.”

“Downward momentum in EUR/JPY would be reinforced if the EUR finally corrects lower too. According to our yield-based valuation model, the EUR has become significantly overvalued. Long EUR positions remain close to record highs. It is encouraging more of a push back against EUR strength from the ECB.”