USD/JPY: How correction will be over – Deutsche Bank

Sandeep Kanihama FXStreet Contributor

According to Taisuke Tanaka, Strategist at Deutsche Bank, if US fiscal policy fuels faster rate hike cycle outlook, USD/JPY could top ¥120.

Key Quotes

“The USD/JPY entered a correction phase in the two-month "Trump rally" since the US presidential election. The Trump administration will take office on 20 January. We suspect the markets may stay in dull tone for coming months thereafter to gauge whether the president will carry through with his fiscal policy promises. We believe the path this year of the US economy, presently at near full employment, will depend on policy introduction rather than cyclically autonomous change. We do not consider it meaningful to predict market developments until US fiscal policy is clear. If fiscal policy buoys the economy, raising expectations of more than two rate hikes by the Fed within the year, the USD/JPY could rally again to the ¥120 level.”

“Our US economist's latest forecast calls for US growth of 2.4% in 2017 and 3.6% in 2018. This appears to assume a rise to 3-4% growth from late this year to next year, when stimulus is enacted, which suggests that growth until that point can be unostentatious. The USD/JPY might experience a deeper fall if risk-off events occur outside the US or if the Trump administration moves to talk down the dollar. We had felt that the rate could slump to around ¥110 on at least a partial unwinding of long positions amassed by overseas speculators during the Trump rally.”

“At present, though, the rate has been firm at ¥113-115. Some importers may have seen their dollar-buying contracts knocked out, forcing them to repurchase. Some institutional investors have hesitated to buy new unhedged foreign bonds at the rich level of around ¥115, but may gradually unwind their hedged (dollar short) positions. We believe dollar selling from an unwinding of speculative long positions will be absorbed by such purchase of Japanese companies and investors with dollar short exposure, which should firmly keep the USD/JPY in a ¥110-115 range for some time.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

EUR/USD trims gains, hovers around 1.1900 post-US data

EUR/USD trades slightly on the back foot around the 1.1900 region in a context dominated by the resurgence of some buying interest around the US Dollar on turnaround Tuesday. Looking at the US docket, Retail Sales disappointed expectations in December, while the ADP 4-Week Average came in at 6.5K.

GBP/USD comes under pressure near 1.3680

The better tone in the Greenback hurts the risk-linked complex on Tuesday, prompting GBP/USD to set aside two consecutive days of gains and trade slightly on the defensive below the 1.3700 mark. Investors, in the meantime, keep their attention on key UK data due later in the week.

Gold loses some traction, still above $5,000

Gold faces some selling pressure on Tuesday, surrendering part of its recent two-day advance although managing to keep the trade above the $5,000 mark per troy ounce. The daily pullback in the precious metal comes in response to the modest rebound in the US Dollar, while declining US Treasury yields across the curve seem to limit the downside.

XRP holds $1.40 amid ETF inflows and stable derivatives market

Ripple trades under pressure, with immediate support at $1.40 holding at the time of writing on Tuesday. A recovery attempt from last week’s sell-off to $1.12 stalled at $1.54 on Friday, leading to limited price action between the current support and the resistance.

Dollar drops and stocks rally: The week of reckoning for US economic data

Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.

Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals

Bitcoin Cash (BCH) trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.