SocGen: Short-term trade – Sell EUR/JPY ...Middle East

Key Points:

USD/JPY has maintained a tight correlation with 10-year US yields.Relative growth expectations now matter more than relative rates.

EUR/JPY Disconnect from Fundamentals

Eurozone growth expectations are deteriorating relative to Japan.Despite this, EUR/JPY is trading at the same level as a year ago, creating a misalignment.

Given weak Eurozone growth expectations and Japan's improving outlook, the best trade now is to short EUR/JPY.The market may soon adjust to reflect the economic divergence between the Eurozone and Japan.

Conclusion:

SocGen recommends selling EUR/JPY as a short-term trade, citing the striking deterioration in Eurozone growth expectations versus Japan. Even if US yields remain rangebound, JPY strength should persist, making EUR/JPY a prime short candidate.

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This article was written by Adam Button at www.forexlive.com.

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