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22 Apr 2015
EUR/JPY remains a long-term sell opportunity – FXStreet
FXStreet (Barcelona) - Omkar Godbole, FXStreet Editor and Analyst, explains the characteristics of EUR/JPY as a funding and safe-haven asset, and hence remains a long-term bear on the pair, targeting 122.74 levels by August-September 2015.
Key Quotes
“The net impact is the EUR/JPY remains a long term sell as –
It is a funding currency but a relatively less attractive safe haven asset. Consequently, it would under perform in times of risk aversion.
German 10-year yield (at 0.10%) now trades below Japanese 10-year yield (at 0.30%). With the ECB’s QE program expected to continue till September 2016, the German yields could only extend losses. On the other hand, markets have started speculating BOJ QQE taper next year. Thus, the Japanese yield could harden. Therefore, investors in the Eurozone could even look for Japanese assets due to worsening German-Japanese yield spread.
However, with risk assets at overbought levels and every major currency being stuck at the zero lower bound, the onus of supporting risk assets/risk-on rallies falls on economic growth, mainly in the US. Given, the US is showing signs of weakness, the rate hike could be delayed, which would be a risk-off event too.
Consequently, JPY stands to be the biggest gainer, and EUR/JPY a major loser in case of risk aversion.”
“The pair could see technical rallies up to 133.136 levels from the current level of 129.00 in case the EUR rebounds due to the unwinding of over stretched short positions.”
“However, the pair is likely to decline to its 200-week average at 122.74 and may even extend losses to 118.73 levels by August-September 2015.”
Key Quotes
“The net impact is the EUR/JPY remains a long term sell as –
It is a funding currency but a relatively less attractive safe haven asset. Consequently, it would under perform in times of risk aversion.
German 10-year yield (at 0.10%) now trades below Japanese 10-year yield (at 0.30%). With the ECB’s QE program expected to continue till September 2016, the German yields could only extend losses. On the other hand, markets have started speculating BOJ QQE taper next year. Thus, the Japanese yield could harden. Therefore, investors in the Eurozone could even look for Japanese assets due to worsening German-Japanese yield spread.
However, with risk assets at overbought levels and every major currency being stuck at the zero lower bound, the onus of supporting risk assets/risk-on rallies falls on economic growth, mainly in the US. Given, the US is showing signs of weakness, the rate hike could be delayed, which would be a risk-off event too.
Consequently, JPY stands to be the biggest gainer, and EUR/JPY a major loser in case of risk aversion.”
“The pair could see technical rallies up to 133.136 levels from the current level of 129.00 in case the EUR rebounds due to the unwinding of over stretched short positions.”
“However, the pair is likely to decline to its 200-week average at 122.74 and may even extend losses to 118.73 levels by August-September 2015.”