EUR/JPY: Surprisingly steady - ING

Despite global equity market moves, EUR/JPY is diverging from its usual correlations, driven by a dollar sell-off and repatriation flows from Europe and Japan. With the yen seen as more undervalued and the BoJ leaning hawkish, the pair carries a downside bias in the near term, ING's FX analysts Francesco Pesole and Chris Turner note.

EUR/JPY breaks from equity correlation

"EUR/JPY has continued to defy its normally positive correlation with global equity markets. The story here is the big sell-off in the dollar and the flight to the liquidity of both the euro and the yen. Equally, both the European and the Japanese are the big investor communities potentially repatriating assets from the US. Balance of Payments data may eventually confirm this."

"We do, however, think EUR/JPY has a downside bias since USD/JPY can fall further than the EUR/USD can rally. The yen is more undervalued in the medium term according to our models. Equally, the BoJ is still minded to hike rates and more minded to give Washington the stronger currency (weaker $) that it craves."