MUFG Bank analysts recommend a business idea to short the EUR / JPY pair with an entry level at 125.30 and a target at 122.80 with a stop-loss at 127.20. They warn that EUR / JPY long positions could be vulnerable to compression.
“The pair have just settled into the double top at 126.76. President Abe’s decision to step down has introduced new uncertainty about the sustainability of Abenomics policies. The uncertainty is unlikely to disappear in the short term. The increased uncertainty will encourage speculative demand for JPY and more volatility for JPY. We prefer to put the JPY long position against the EUR where long positions are already high, increasing the risk of compression. Recent euro price action has also been poor. It failed to reach new highs against the USD after the Fed’s policy update, which is disappointing.
“We remain of the view that it is overvalued and awaits a deeper correction to the downside, although we have less conviction on this point against the USD. The rise in COVID cases in the euro area and the growing risk of further economic disruptions are gradually undermining the current bullish outlook for the euro. “