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Friday, October 20, 2006

EUR/JPY: Sentiment Growing Increasingly Bearish

Traders are growing increasingly bearish on EUR/JPY with the cross having stalled above 150.00 and the end of a six year uptrend seen. Rising expectations that the ECB will pause on rates, while speculation of a rate increase is pushing JGB yields higher is seen narrowing the yield differential and weighing on the cross. Warnings over carry trades are also a negative for the EUR/JPY outlook along with comments since September from European officials concerned over JPY weakness. The cross trades at 149.03 currently with offers tipped at 149.20, 149.50, 149.75 and 150.00. Stops are building under 148.60 with reports of recommendations to short the cross if 148.50 gives way with traders beginning to position for a large downside move.

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