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 weakens to near 1.1900 as traders eye US data

EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.

GBP/USD stays in the red below 1.3700 on renewed USD demand

GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.

Gold sticks to modest losses above $5,000 ahead of US data

Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.

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

Bitcoin Cash 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.

Follow the money, what USD/JPY in Tokyo is really telling you

Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.

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.