SocGen: Short-term trade – Sell EUR/JPY

SocGen sees selling EUR/JPY as the best short-term trade, given the divergence in Eurozone vs. Japan growth expectations. While USD/JPY remains strongly correlated to 10-year US yields, the broader JPY strength case is intact as US equities soften and Treasury yields edge lower.Key Points:Strong Correlation Between USD/JPY & US YieldsUSD/JPY has maintained a tight correlation with 10-year US yields.Relative growth expectations now matter more than relative rates.EUR/JPY Disconnect from FundamentalsEurozone growth expectations are deteriorating relative to Japan.Despite this, EUR/JPY is trading at the same level as a year ago, creating a misalignment.Short-Term Trading StrategyGiven 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.For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here. This article was written by Adam Button at www.forexlive.com.

Feb 6, 2025 - 00:50
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SocGen: Short-term trade – Sell EUR/JPY

SocGen sees selling EUR/JPY as the best short-term trade, given the divergence in Eurozone vs. Japan growth expectations. While USD/JPY remains strongly correlated to 10-year US yields, the broader JPY strength case is intact as US equities soften and Treasury yields edge lower.

Key Points:

  1. Strong Correlation Between USD/JPY & US Yields

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

  2. 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.

  3. Short-Term Trading Strategy

    • 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.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here. This article was written by Adam Button at www.forexlive.com.

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