EUR/JPY: Waiting on a corrective bounce towards 118.50/119.25 before selling

TD on EUR/JPY

TD Research discusses EUR/JPY outlook and looks to sell the cross strategically on a bounce towards 118.50/119.25.

"We are biased to USD strength. As some degree of normalcy settles in at some point, the global balance of payments backdrop will likely be amplified as the shock wears on. There are a handful of major currencies in a position of strength, but a number are in a position of weakness.The JPY fits in the former camp as its current account composition should imply a stickier bid compared to many of its peers. The EUR, CAD and GBP are in a position of weakness," TD notes.

"The play - EURJPY downside. Taken together, we think this setup will support EURJPY downside...This, alongside depressed US real yields, should promote strategic downside in EURJPY. We would expect the pair to make a corrective bounce towards 118.50/119.25 first, before a strategic short should be considered. A flush lower in this pair should also weigh on USDJPY, and the broader FX complex as well," TD adds.

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