Citi Warns EUR/JPY to Slide Below ¥175 Despite Near-Term Rebound Risk
Citi analysts are warning that despite a possible near-term rebound to around ¥183 per euro, the EUR/JPY currency pair is likely to decline in value over the coming months.
The bank believes the EUR/JPY has formed its long-term ceiling this spring, with rising Japanese real interest rates driven by a slowdown in Japanese equity gains shifting the pair's dynamics.
Citi notes that a correction towards the level of the absolute interest rate spread is starting to occur. According to their base case scenario, EUR/JPY will be at around ¥181 per euro in December before falling below ¥175 per euro in the first half of next year, assuming current market conditions persist.
Citi also identifies a major correction in Japanese equities as a risk scenario that could expose unexpected downside fragility for EUR/JPY, similar to what happened with USD/JPY.