Credit Agricole’s FAST FX model has identified that the EUR/JPY currency pair is currently overvalued, prompting the bank to recommend a sell trade. The model indicates that the short-term fair value of EUR/JPY has decreased from a high of 163.9110 to 162.1633.
This shift in valuation is attributed to various factors including a rise in European Government Bond (EGB) peripheral yields compared to German Bund yields, European equities underperforming against Japanese equities, and a decline in the Eurozone-Japan terms-of-trade ratio.
Credit Agricole has determined that the current valuation of EUR/JPY 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 with 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 will automatically close the trade at 22:00 BST on Friday, May 17, unless the EUR/JPY pair reaches the take-profit or stop-loss levels set by the bank before that time.
This decision by Credit Agricole reflects their response to recent market developments that have impacted the valuation of the EUR/JPY currency pair. The bank’s analysis suggests that the pair is currently trading above what their model considers to be a sustainable level based on short-term fair value estimates.