The revenge of the yen bears

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  • EUR: Another discussion regarding the necessity for a rate cut is likely at today’s meeting of the ECB’s Governing Council, just as there was last month. It turns out that a majority of policy-makers were open to the need to reduce the benchmark rate but opted against it amidst fears that it could trigger unnecessary uncertainty. All things considered, the Governing Council is likely to sit on its collective hands once more, in part because a rate reduction would not achieve very much.
  • GBP: MPC decision at midday, no change expected. Last month 8 of 9 members voted for unchanged policy, and since then not much has shifted. If anything, growth data for Q4 has been slightly better than expected, although services PMI was weak. Unlikely to see much response from sterling.
  • JPY: The new Abe government is set to announce a major stimulus package tomorrow, which could be worth 2% of GDP. BOJ set to meet in less than two weeks. Fitch warns that Japan’s debt rating is under threat. All things considered, Yen still on the defensive.

Idea of the Day

The yen bears growled loudly yesterday and forced the bulls to retreat once more. Most of the yen crosses against the other majors are near or above multi-year highs once more – for instance, AUD/JPY is at a 4 ½ year high, CAD/JPY is just below a 2 ½ year high and USD/JPY is close to a fresh 2 ½ year high as well. Although from a technical perspective the yen seems very oversold, the nature of this sell-off is heavily structural, and as such the Japanese currency is likely to remain oversold for some considerable time. The yen bears are in charge, and it still seems best to go with the flow rather than fight the trend.

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  • JPY: With the dollar in the ascendancy, there was never much prospect of the yen making any forward progress yesterday. After falling below 87 briefly in Asia yesterday, USD/JPY is now back above 88.0 and not far from last Friday’s 2 ½ year high. Still no need to fight the tape – short yen remains the winning trade.
  • USD: The dollar was in demand yesterday, despite the absence of fundamental drivers. Rumours that Jack Lew would be appointed as the next Treasury Secretary assisted the mood – he is well-respected. Dollar index up at 80.60, a two month high.
  • EUR: It was ever so gradual, but the single currency edged lower yesterday towards 1.30, where once again plenty of buying surfaced. Even so, these days the real action in currencies is elsewhere, namely in the yen. EUR/JPY for instance is back through 115 again and looking perky, after sliding to 113.50 in Asia yesterday.
  • GBP: Trade figures were disappointing but failed to elicit a response. Like the euro, cable drifted lower and eventually traded beneath 1.60. Seems soggier than the euro at present, and for choice could continue to lose ground near term not just against the euro but the dollar as well.
  • AUD: Managed to strengthen against a rising dollar, helped by decent Chinese trade figures, in another very impressive display. Overnight it rose to 1.0566, not far now from the top of the 1.02-1.06 trading band in which the Aussie has been boxed for the past six months.
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