EUR/JPY may rise while ECB cuts interest rate
June 7 (Reuters) -EUR/JPY, which rose from 133 to 171 while the European Central Bank was hiking its main interest rate may continue to rise while it cuts.
While the interest rate gap supporting the pair is expected to narrow, it is still seen around 3 percentage points at the end of this year. That should be sufficient to draw investors to this popular carry trade.
When the U.S. Federal Reserve embarks on its easing cycle, the resulting stimulus is likely to spur investing and gambling, fuelling demand for carry trades, such as EUR/JPY long positions.
There is a good chance that the pair surpasses 174.71, which is the limit for a correction of the pair's 1990-2000 plunge, (pre-1999 rates were calculated using a basket of currencies of countries that adopted the euro), and a rise beyond it would suggest the pair returns to 1990's high at 198.10.
The prospect that bigger FX gains could add to those from interest rates may draw more investors, with the pace of EUR/JPY rise accelerating as they add to bullish positions.
EUR/USD's elevated status is reason to expect it to rise nL1N3I50F5
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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