EUR/USD - The series of tops at 1.5900-20 area represent a tempting trend continuation level from which to attack 1.6000 and higher. Above 1.6000, though, and the prospect of EU intervention increases substantially. If the G7 statement on FX is unchanged, I would reckon with a successful test of recent highs, ultimately leading to a break above 1.6000, with follow-through potential to the 1.6200/50 area initially. From there, however, I would not recommend staying long EU due to the risks of intervention. At the same time, I would not go the other way (short) in anticipation of intervention, but instead look to get short if/when intervention does occur.
JPY crosses - I look for USD/JPY to remain heavy while below 102.50-103.00 and for an eventual drop below the 98.50 level, which will set up a test of the key 95.00 level. A return to risk aversion suggests additional downside for JPY-crosses and I remain a seller of them on strength. EUR/JPY below 158.00 is likely to be the harbinger of a sharper unwinding of JPY-crosses.
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