For the last six months, US real yields have been falling relative to those in the Eurozone and (even more sharply) in Japan. Those real yield moves have been undermining the dollar and as the DXY dollar index broke lower, all the way to levels last seen before the ECB cut rates in January 2015, EUR/USD and USD/JPY have gathered momentum.
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We are going to overshoot from here, and dollar bulls need to see a turnaround in real yields before buying.
Shorting EUR/USD at 1.1850 with a stop above 1.20, and buying USD/JPY at 101.50, say with as top just below 100, may appeal but we’ll get round to that when we are there.
