EUR/JPY: Sideways near term and then gradually higher - Danske Bank

Analysts at Danske Bank, expect the EUR/JPY pair to trade mainly sideways in coming months. They point out that while downside risks still dominate near-term amid geopolitical tensions and trade war concerns, a neutral speculative JPY positioning is likely to curb volatility and downside potential.

Key Quotes: 

“We expect the Bank of Japan to keep its monetary policy unchanged at the 26-27 April meeting, which is the first meeting under the new leadership. However, we believe that the April meeting will be crucial for the Bank of Japan (BoJ) outlook this year. In particular, we expect two things to attract attention at the upcoming meeting: (1) the votes by the two new deputy governors, as the guidance on the yield curve control and eventually also on a possible exit strategy will be weak if the board is split and (2) the BoJ’s new inflation outlook in the quarterly outlook report as well as whether a new leadership would use this opportunity to change its communication on
inflation.”

“We expect EUR/JPY to trade mainly sideways in coming months targeting 132 in 1M and 133 in 3M. Short JPY positions have been reduced significantly over the past couple of months and speculative accounts are now net long JPY for the first time since November 2016, suggesting that EUR/JPY risks have become more symmetrical from a positioning point of view. Over the medium term, we expect EUR/JPY to trade gradually higher supported by continued solid global growth outlook and ECB-BoJ divergence. We target EUR/JPY at 137.50 in 6M and 143 in 12M.”