Barclays Capital rotated its short EUR/JPY positions into strategic short EUR/USD and tactical short EUR/GBP positions.
In particular, Barclays closed its short EUR/JPY at 137.72 for a gain of (208 pips) 1.45% and entered fresh short EUR/USD position at 1.3280 targeting 1.2815 and short EUR/GBP position at 0.8004 targeting 0.7755. The following is Braclays' rationle behind the new trades.
• Our conviction in selling the EUR has only increased, but the deterioration in Japan's economic circumstances and improved tactical opportunities in the USD and GBP lead us to a change in our preferred line-up on the long side.
• A worsening economic outlook and more rapid disinflation in the euro area imply that ECB accommodation will be kept for longer and perhaps increased in scale, opening further downside potential in the common currency.
• Yet Japan’s data, too, have disappointed and the JPY’s recent erratic movement reduces our conviction that EUR/JPY has similar downside to other EUR crosses, even if it does offer increased protection from tail risks.
• Nearer term, the GBP should benefit most versus the EUR from the G10’s fastest economic growth and greatest underpricing of short-dated interest rates.
• The broad-based USD rally looks set to continue as robust US growth shines amid a softening global economy and upside risks to the Fed’s policy path make it the best strategic long.
• Accordingly, we recommend rolling short EUR/JPY positions into a short EUR/GBP and short EUR/USD from 0.8004 and 1.3280, respectively.