The firm says that EUR/JPY may fall towards 110.00 amid a worsening global economic outlook
According to the firm’s securities arm in Japan, the yen is more likely to strengthen against the euro than the dollar as weakness in the Eurozone makes the ECB more dovish than the Fed; arguing that the US economy is stronger than its counterparts and that may support USD/JPY while the yen could be buoyant against other crosses instead.
They view that USD/JPY is likely to fall towards 105.00 and then 100.00 in the long-term and sees EUR/JPY falling to 110.00 if the global economic outlook continues to worsen.
In the short-term, they view USD/JPY resistance at 108.50 and sees the pair trading between 106.50 to 108.50 amid positive news from US-China trade talks.
I’m all for arguing for yen strength in 2H 2019 (seeing that trade talks won’t be upbeat amid the background of a slowing global economy) but to call for a move in EUR/JPY towards 110.00 from here may be premature. Let’s take things one step at a time.
EUR/JPY rose at the start of the week on optimism from trade talks but buyers failed to hold a break above daily resistance around 123.18. Since then, the pair has been steadily declining and is moving towards daily support around 120.92-95.
That will be the key area to watch out for in the sessions ahead as focus stays on risk sentiment. The May low @ 120.78 will be a key level as well as a fall below that will see price test levels last seen since the January flash crash.
Fundamentally though, what Barclays is saying makes sense but as we all know in FX, things never ever does move in a straight line. But yes, the yen definitely appears more attractive against the crosses and I’d argue that GBP/JPY may offer more incentive over the next few months in that sense as Brexit continues to sit in limbo.