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EUR/JPY To Head Lower Says SocGen

EUR/JPY To Head Lower Says SocGen

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Société Générale’s macro strategist Kit Juckes says selling EUR/JPY would give the Euro bears more bang for their buck than shorting EUR/USD.

In a report released Wednesday, the analyst explained why selling the Euro vs the Yen is a better bet than selling vs the US Dollar. Juckes pointed to Russia’s rationing of Natural gas flows into the bloc as a major drag on the Eurozone’s economy:

“Nordstream 1 flows are expected to halve to 20% of capacity, down from the 40% they were at yesterday. Economists are scrambling to update estimates of the economic impact, but two things are clear, one bad and one slightly more encouraging. The first is that growth is going to be substantially slower than expected. The second is that the response has been significant in terms of building capacity to import LNG from the US, reduce demand, and find other sources of energy (Germany is even talking about restarting nuclear power plants)”

Furthermore, the note cited crowded positioning in EUR/USD as one reason the EUR/JPY pair could outperform on the downside:

“Given positioning (very long USD, and short the European currency bloc), I don’t think EUR/USD shorts are that attractive right now.”

Talking ahead of last nights 75-basis-point rate hike in the US, Juckes said:

The market fully expects a 75bp hike from the FOMC this evening, and the market’s torn 50/50 as to whether we get 50bp or 75bp in September. It isn’t obvious that the FOMC meeting should have a major impact on risk sentiment or provide much support for the dollar. So, EUR bears would still do better to look at EUR/JPY, which has only risen in 6 of the 22 Augusts since 1999.”

EUR/JPY Technical Analysis

The daily chart shows EUR/JPY has slipped -0.7% so far on Thursday. Should the cross finish in the red today, it will mark the fifth losing day in the last seven. Subsequently, the pair is testing the support of a two-month uptrend at 138.20.

A daily close below the rising trend line could encourage selling. However, the 100-Day moving Average (DMA) at 137.55 provides additional cover for the bulls. Considering the confluent technical support we could expect a period of consolidation. That being said, a break below the 100-DMA (on a closing basis) would be viewed as bearish.

For now, traders will be monitoring the price action to see if support holds.

Euro to Japanese Yen Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.