Yen sell-off continues despite lower US yields

  • In general we expect the JPY sell-off to continue. The move higher in USD/JPY on Friday and over night despite the disappointing US labour market report and the subsequent drop in US yields underlines that the yen-depreciation trend is very strong. Note that the latest IMM data show that speculative long USD/JPY positions were scaled back in the week ending 2 April, but remember that the data were collected before the ground-breaking BoJ meeting Wednesday morning. Hence, positioning is probably more stretched now.

  • Despite the soft rhetoric from Draghi last week and jitters around Portugal over the weekend EUR/USD is still able to trade just below 1.30. The support to the euro reflects in our view that 1) the market is (according the IMM data) already speculative short EUR/USD, 2) EUR rates are already very low, 3) the latest US data underline that Fed is in no hurry to exit its QE programme and 4) Apparently, the aggressive BoJ easing and drop in JGB yields have forced Japanese asset managers to buy ‘high-yielding’ European bonds. In fact, it seems that BoJ is doing the job of the ECB. We still like short JPY positions, but we consider lifting the P/L levels in our long MXN/JPY recommendation to lock-in some profit. Strong resistance for USD/JPY is seen at 98.90 and 99.80.

  • Over the weekend another five confirmed cases of bird-flu was reported so overall 21 cases have so far been reported. All the reported bird flu cases has been in Shanghai and the three surrounding provinces Zhejiang, Jiangsu and Anhui. Hence, there are so far no signs that the bird-flu has spread beyond this area. A suspected case in Hong Kong reported on Friday proved negative. The conclusion also remains that this case of bird-flu cannot be transmitted human-to-human. In all the reported cases the transmissions of the flu appears to have happened by direct contact with living birds. Treatment appears to be possible with Tamilflu. At least for the moment it appears to be under control. The mainland stock market has today reopened after being closed for vacation on Thursday and Friday. So far there has only been a modest drop in the Chinese stock market with the Shanghai Composite down a modest 0.5% this morning.

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