Credit Agricole’s (OTC:) FAST FX model indicated that the currency pair appears overvalued, prompting the bank to recommend a sell trade. The model estimated that the short-term fair value of EUR/JPY fell from a record high of 163.9110 to 162.1633.
This shift was attributed to a rise in peripheral European government bond (EGB) yields relative to German Bund yields, while European equities underperformed their Japanese counterparts and a decline in the terms of trade between the Eurozone and Japan.
According to Credit Agricole, the current valuation of the EUR/JPY pair exceeds the threshold of more than two standard deviations above estimated fair value. As a result, the bank initiated a sell transaction for the currency pair. They set a stop-loss level at -2.74% and a take-profit target on the recalculated fair value of 162.1633.
The bank’s FAST FX model is expected to close the trade automatically at 10pm BST on Friday 17 May. The trade will be terminated at this point unless the EUR/JPY pair reaches the take-profit or stop-loss levels set by the bank. bank before the specified date.
This move by Credit Agricole reflects a response to recent market developments that have affected the valuation of the EUR/JPY currency pair. The bank’s analysis shows that the pair is currently trading above what the model considers a sustainable level based on short-term fair value estimates.
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