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Analysts at MUFG Bank, see the EUR/JPY pair moving to the downside. They have a trade idea of shorting the pair at 125.70 with a target at 123.00 and a stop-loss at 127.30.

Key Quotes:

“After hitting an intra-day high of close to 127.50 on 7th January, the pair has fallen back sharply. It has been part of broadbased correction lower for the EUR after it was one of the best performing currencies last year. We still see scope for the EUR sell off to extend further in the near-term.”

“Seasonal factors are also in play. January tends to be one of the worst months of the calendar year for the EUR and often follows strong performance in December. The recent rise in European political risk could support the short-term correction for the EUR as well.”

“The ECB is scheduled to meet in the week ahead. We do not expect further policy easing after action in December. The ECB will be pleased though that the EUR has at least lost some upward although it remains at stronger levels which remains a concern.”

“The JPY could benefit from the reversal trade at the start of this year. It has one of the worst performers in December. We do not expect the JPY to weaken materially following next week’s BoJ policy meeting.”