FxWirePro: Euro to trade lower at 112 against Yen (medium term outlook)

Both European Central Bank (ECB) and Bank of Japan (BOJ) are in massive easing mode, however we expect Euro to suffer more on the downside than Yen. While both Euro and Yen gained, despite their respective central banks introducing fresh easing, Euro is yet lacking the escape velocity, while Yen is already flying. Euro is relying more on weakness of Dollar, while Yen benefits from drop in equities, weaker Dollar and any form of risk aversion.

We expect, European Central Bank (ECB) from now on to verbally intervene and try and talk down the Euro at every meeting. Bank of Japan may also be trying that but according to our view ECB has a greater chance of success.

Moreover there are several risks hanging out some of which have diminished but only for the time being, like China crisis, emerging market corporate weakness, whereas risks like Brexit is still hanging, which will benefit the Yen going forward.

Some short term risk in long Yen however stemming from recent rise in equities and heightened probability of an intervention from BOJ.

Kindly note, due to size of the target, it may take quite some time (medium term) to reach target and this call is not to be confused with short term calls, which may sometime contradict this medium term outlook.

Trade idea –

• Sell Euro, against Yen at current price of 123.5 and at rallies, targeting 119, 116 and 112 area with stop loss around 128.5.
• 125 area will act as critical resistance.