Societe Generale Research maintains a structural bullish bias on JPY via core short EUR/JPY. SocGen looks to rotates from short EUR/JPY to short GBP/JPY if EUR/JPY rises back above 120.
"The Macron/Merkel package is proposal, but only a proposal, to take a step in the right direction. So it's a tantalising prospect but not more. In concrete terms, Europe's inability to build sensible economic architecture keeps the EUR/USD rate over 20% below PPP. Fix that and EUR/USD will average 1.30 for the next decade.
This proposal isn't a fix of any kind yet. For now, it's just something to shake out euro shorts, against the yen as much as the dollar. We will go on bumping along the bottom of the post-2014 range, and within the post-2008 downtrend, for a while longer," SocGen notes.
"In practical terms, we'll stick with EUR/JPY shorts unless we break 120. If EUR/JPY does break 120, while the UK continues to rule out any extension to Brexit negotiations, we'll be sorely tempted just to double down with fresh GBP/JPY shorts," SocGen adds.