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Analysts at TD Securities suggest that the ECB and now the BoJ have perfected the art of the dovish tweak.

Key Quotes

“The ECB tied the end of QE to the data but utilized forward guidance to water it down. The BoJ offered more flexibility on its 10y band, allowing wiggle room for it to double to 0.2%, but anchored that with guidance on the outlook for rates. Both central banks have tied policy to the macro outlook, forcing the market to be long the data and the currency.”

“These actions should reinforce the recent ranges in the likes of EUR and JPY. In the very short-run, for instance, USDJPY looks confined to the 110.50 to 113 range. However, given the optionality in the monpol operations and prospects for steeper curves, we doubt these ranges will hold into the fall, suggesting a top in the DXY.”

“EURUSD and USDJPY vol is also starting to look cheap, suggesting long volatility plays (like straddles) could be a nice way to trade these pairs.”