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Analysts at Danske Bank expect the EUR/JPY pair to continue to trade mostly sideways in the near term with risk appetite and yields on 10 year US Treasuries as main drivers and to recover gradually longer term.  

Key Quotes:  

“The BoJ has shifted to autopilot mode after it announced some policy tweaks at the July meeting. BoJ’s policy tweaks have improved the credibility and sustainability of the monetary policy and we expect the BoJ to keep its current policy intact until the end of 2019 at least.”

“We expect EUR/JPY to continue to trade mostly sideways in the near term with risk appetite and yields on 10Y UST as main drivers. Political events, most noteworthy a potential summit meeting between Abe and Trump, represent a downside risk if concerns about a US-Japanese trade war increase. Non-commercial JPY positioning is close to stretched short JPY, according to IMM, which leaves EUR/JPY risks skewed to the downside from a positioning point of view. We target EUR/JPY at 129 in 1-3M.”

“In the medium term, we expect EUR/JPY to gradually recover supported by ECB-BoJ divergence, continued solid global growth outlook and continued portfolio outflows out of Japan. We target EUR/JPY at 135 in 6M and 143 in 12M.”