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Forex: Credit Agricole says EUR/JPY is overvalued

Published 05/15/2024, 08:02 AM
© Reuters.

Credit Agricole (OTC:CRARY)'s FAST FX model indicated that the EUR/JPY currency pair appears overvalued, prompting the bank to recommend a sell trade. The model estimated that the short-term fair value of EUR/JPY has decreased from a record high of 163.9110 to 162.1633.

This shift was attributed to a rise in European Government Bond (EGB) peripheral yields relative to German Bund yields, along with European equities underperforming against their Japanese counterparts and a decline in the Eurozone-Japan terms-of-trade ratio.

According to Credit Agricole, the current valuation of the EUR/JPY pair exceeds the threshold of being more than two standard deviations over its estimated fair value. As a result, the bank has initiated a sell trade for the currency pair. They have set a stop-loss level at -2.74% and a take-profit target at the recalculated fair value of 162.1633.

The bank's FAST FX model is scheduled to automatically close the trade at 22:00 BST on Friday, May 17. The trade will be terminated at this time unless the EUR/JPY pair reaches the take-profit or stop-loss levels set by the bank prior to the specified date.

This move by Credit Agricole reflects a response to recent market developments which have influenced the valuation of the EUR/JPY currency pair. The bank's analysis suggests that the pair is currently trading above what its model considers to be a sustainable level, based on short-term fair value estimates.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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