EUR/JPY should come lower if a more a traditional business cycle emerges – ING
Since 2020, EUR/JPY has rallied close to 40%. Economists at ING analyze the pair’s outlook.
EUR/JPY has a modest positive correlation with global equity markets
EUR/JPY has a modest positive correlation with global equity markets. If a more traditional business cycle emerges where equities turn lower headed into a US recession (equities normally turn six months before a recession) and bonds rally, then EUR/JPY should come lower in line with our forecasts. If, however, lower US rates lead to both bonds and equities rallying then we are probably underestimating the performance of EUR/JPY.
On the bond side as well, we will be interested to watch developments in the eurozone yield. The current inverted yield curves in Europe make it too expensive for Japanese investors to FX hedge European bond portfolios. Bullish steepening of European curves would see FX hedge ratios increase and EUR/JPY finally.
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FXStreet Insights Team
FXStreet
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