Retail Heavily Short EURJPY

The retail market is holding a roughly 90% short position in EURJPY today putting the pair firmly in focus as a good candidate for longs. EUR has been trading higher all week and is benefiting nicely today from the drop in USD on the back of yesterday’s US inflation data. With hawkish ECB expectations still intact, narrowing policy divergence between the Fed and the ECB is favouring EUR currently. At the same time, better risk appetite is fuelling weaker safe-haven demand for JPY, creating plenty of room for EURJPY to continue higher near-term.

ECB/BOJ Divergence

The BOJ remains firmly committed to maintaining an easing stance in markets until such time that inflation is moving sustainably above target. With the ECB widely expected to press ahead with further tightening at next month’s meeting, however, the divergence between the ECB and the BOJ is creating plenty of support for EUR keeping EURJPY on the table as a pair to watch for bullish opportunities.  We’ve heard hawkish commentary from several ECB members recently highlighting the need to press ahead with further tightening and the market is currently pricing in a further .25% increase next month.

Technical Views

EURJPY

The rally in EURJPY has seen price breaking out above 145.51 level in line with bullish momentum studies. This is a key pivot area for the market and while above here, the focus is on a further push higher and a continuation of the bullish channel towards the 147.75 level next.