JPY Has Taken off again

Short-term recommendation

• We recommend sale of EURJPY for a movement towards 156.
• We recommend the following strategies:
• sell EURJPY forward at 1 month
• buy a EURJPY mini short certificate

JPY has strengthened against EUR while attention has in recent weeks increasingly focused on the slowing economic growth in the euro zone. The poor macroeconomic news has led to increased speculation about an interest rate cut by the ECB in the course of the first six months of 2009. This has caused the 2-year swap spread between Japan and the euro zone to narrow by 40-45 bp since mid-June. The trade-weighted index shows JPY to have traded within a relatively narrow range in recent months. However, the sour sentiment in the financial markets of late is one of the reasons for the closure of carry trades and for the yen appreciation. Also against EUR and DKK has the Japanese currency appreciated fairly over recent weeks, and it has broken through both the 100- and the 200-day moving averages, and now that the 100-week moving average (currently at 160.24) has been breached, the road is clear for a new wave of JPY appreciation. We therefore recommend investors to sell EURJPY for a movement towards 156 and with stop-loss at 162.45. We recommend investors to buy JPY forward or alternatively by means of certificates. EURJPY put options are very expensive because of the high volatility, and corresponding sale of a call option is only for the most risk-tolerant investors. This is why we recommend investors to buy forward or via certificates.

Chart 1: EURJPY Source:

Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt

The analysis is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the analysis. The estimates and recommendation of the analysis may be changed without notice. The analysis is for personal use of Jyske Bank's customers and may not be copied.