EUR/JPY: Euro remains vulnerable to a deeper correction lower in the near-term  – MUFG

Analysts at MUFG Bank, continue to hold the idea of a short position in EUR/JPY with a target at 122.80 and a stop-loss at 127.20. They still see the euro vulnerable to a correction lower. 

Key Quotes: 

“We continue to believe that the EUR remains vulnerable to a deeper correction lower in the near-term. According to our yield-based valuation model, the EUR has become significantly overvalued. At the same time, bullish sentiment and positioning has become extreme. Long EUR positions are at record highs. The sharp pace of recent EUR gains has finally prompted the ECB to push back. The flare up in Brexit uncertainty could also start to have more of dampening impact on the EUR.”

“The JPY could benefit from heightened political uncertainty in Japan and the risk of deeper correction for highly valued US tech stocks. It appears increasingly likely that Prime Abe will be replaced by a continuity candidate such as Chief Cabinet Secretary Suga helping to limit financial market disruption. But that does not mean that confidence in Japan’s policies to lift inflation and growth will not continue to fade favouring a further reversal of JPY weakness ahead.”