Bank of America: The synchronized movement of the euro and yen is about to end. It is recommended to go long on the euro.

On April 22, the euro and the yen were the two best performing developed market currencies this year, both appreciating by about 12% against the dollar. Bank of America analysts believe that the coordinated trend of the two currencies may change, as the yen rally is more vulnerable than the euro, so they recommend buying one-year call options on EUR/JPY. The reasons include: 1) Speculative positions in both EUR and JPY are large net longs, but JPY long positions are tighter, leaving room for the pair to rally. 2) Part of the reason for the tight position is the expectation that the US-Japan exchange rate agreement will lead to further strengthening of the yen. However, Bank of America believes that the United States and Japan are more likely to reach a trade deal that does not include an exchange rate clause. 3) This year, the euro has strengthened a lot regardless of the market environment, while the yen has only appreciated sharply when investors are adamantly risk-averse and/or focused on Fed easing, but has weakened in other environments. 4) The euro was buoyed by positive news from Germany's fiscal expansion. Japan's room to increase spending is much more limited.