Yen Bulls Mauling Weak Dollar May Find the Going Tough Vs Euro

When it comes to the yen’s prospects versus the dollar, there seems to be a consensus: stay long. Against the euro, it isn’t that simple.

At least a part of the bullishness on the Japanese currency is predicated on a wobbly dollar; the argument is less persuasive when it comes to the euro-yen cross.

While the common currency could come under pressure against the yen over the next few weeks as investors await the outcome of Italian elections and the European Central bank’s policy review for March, both key risk events on the European calendar this year, there are few hurdles that stand in front of the euro beyond that.

In fact, there is a compelling case that could be made arguing for strength in the shared currency: euro-area economic growth is now holding near the highest in almost seven years, while inflation has held consistently above 1 percent since the start of 2017, spurring investors to price in the first rate increase in the deposit rate next year.

Even on the charts, further appreciation for the yen looks capped. The euro has consistently found support around 131.50 for months on end now, which is just about 1 percent from current levels.

  • NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
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