Short EUR/JPY, targeting 112.00
Debt markets signalling weaker EUR
A large volume of EUR-denominated bonds (near 2 trn yen of French bonds) were sold in March by Japan in the time when EUR/JPY peaked. While it may be hedged, it sends a weak signal on euro zone growth and sentiment particularly on the backdrop of lock-downs. On the contrary, the Japanese have been loading up on over a record 5trn yen worth of US sovereign debt.
Options market are bearish the pair
Looking across bloomberg data, it would appear that the market holding near 3x the volume of EUR/JPY puts vs calls, much of which are around strikes concentrated around the 114-115 levels.
A large volume of EUR-denominated bonds (near 2 trn yen of French bonds) were sold in March by Japan in the time when EUR/JPY peaked. While it may be hedged, it sends a weak signal on euro zone growth and sentiment particularly on the backdrop of lock-downs. On the contrary, the Japanese have been loading up on over a record 5trn yen worth of US sovereign debt.
Options market are bearish the pair
Looking across bloomberg data, it would appear that the market holding near 3x the volume of EUR/JPY puts vs calls, much of which are around strikes concentrated around the 114-115 levels.
Note
Weak Eurozone growth and underperforming equity marketsWith Eurozone growth remaining weak in the near term, large inflows to support the EUR at this point seems fairly low. In addition, we can expect the ECB to increase its asset purchasing program in June, which would increase the money supply in the system, thereby weakening the currency further. I/Y rates are expected to remain low.
PMI data and recovery fund proposals are key over these two weeks. Any positives will likely spell a short term positive for EUR.
While out-performance in EU equities could pose a risk, a sudden shift in market growth expectations is unlikely in my view.
Technicals
Targeting 112, but lower end of the channel is nearer to 110.
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