EUR/JPY consolidative medium term – Rabobank

Head of FX Strategy at Rabobank Jane Foley gives her views on the cross.

Key Quotes

“Since the end of March the JPY has finally given up some of this year’s safe haven gains. The easing of tensions on the Korean peninsula can be linked with this move. The continued reassurances of BoJ Governor Kuroda regarding his commitment to QQE have also contributed to the moderately softer tone of the JPY. That said EUR/JPY is holding well below its early February highs, reflecting the souring of investor appetite relative to 2017 and early 2018”.

“Trade wars, expectations of two or three more rate hikes from the Fed in 2018 and a slowing of growth momentum in Europe are all conducive to lower risk appetite than last year. In addition, the JPY could find support from the sharp drop in PM Abe’s approval ratings on the back of domestic scandals over suspected favouritism and cover-ups. That said, we expect that scope for the yen to gain significantly versus the euro is limited. Continued soft inflation in the Eurozone, a patient ECB and a market that is positioned long in EUR suggests limited upside potential for the euro. We see fairly consolidative trading for EUR/JPY with scope for a modest down-drift”.