The FX market is like a great big herd of sheep, constantly looking for direction and then all piling off blindly in one direction just because one led the way.
After chatting with quite a few people, it seems to me that the market is continually selling Yen because it’s the directional thing to do. Not a lot of thought going into it, but if everyone else is buying EUR/JPY then I should be too! Real-money, hedge funds, CTAs and retail traders, all doing the same thing.
Is EUR/JPY headed to 140? Or even 150? Possibly, I have no idea. But if you want to see what happens when the herd of sheep reaches the edge of a cliff, simply look back at AUD/JPY during the GFC when it was falling by 15% in half a session! That’s what happens when you trade blindly in one direction without an underlying fundamental reason.