Good Entry for Short EURJPY

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Japanese yields are on the move and this short squeeze in EURJPY is a good opportunity to sell near the highs. Intervention is a meaningful kicker.

by Brent Donnelly

April 15, 2024

Car discount (actual price paid vs. MSRP) by day of the week

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Current Views

Short EURJPY @ 164.10

Stop loss 165.76

Take profit 160.16

JGB shorts no longer making widows

The large short squeeze in EURJPY offers a nice entry point for new shorts. There has been a notable rise in Japanese yields this year, and they are making new highs while German yields struggle and consistently fail to take out 2.50%. This first chart shows Japanese yields in black and Germany in blue.

While a certain amount of JPY performance has tracked the Nikkei, both the rate differentials and the Nikkei suggest that EURJPY is on the high side here. I am particularly attracted to this idea because of the asymmetry offered by potential MOF intervention.

It would have been somewhat disingenuous of Japanese officials to intervene after a strong US CPI given their mantra is that FX should reflect fundamentals, but now that the dust has settled, and USDJPY is another 130 pips higher, it’s probably fair game. My view has generally been that 154/155 is the sweet spot for intervention as they let the 152 line in the sand go. Lines in the sand are bad, and hard to enforce. Better to take a more ad hoc approach and keep the market guessing.

In February, Kanda said: *KANDA: 10-YEN MOVE OVER ONE MONTH IS RAPID … Which would imply 156 is now the 10-yen threshold as we touched 146 in early March. Past interventions have yielded an initial six big figures of downside juice so one could guess that if they come in here, we see 148 USDJPY and 159 EURJPY. While the geopolitics looks to have settled down in the Middle East, there is also some possibility of an Israeli response and that would also be bearish EURJPY. By doing EURJPY instead of USDJPY, you get a bit of a margin of safety on a broad USD rally.

Short here with a stop above the highs at 165.76.

Calendar

Here is this week’s calendar. With the Bank of Canada priced at 50/50 for a cut in June, tomorrow’s CPI figure takes on much more importance than usual. Also note the flurry of UK data.