Analysts at TD Securities suggest that against the backdrop where the USD may get a carry boost, they are favoring a tactical USDJPY topside move.
Key Quotes
“With our expectation that the BOJ should remain sidelined, the yen should be more of a function of the Fed and 10yr Treasury yields. Here, we expect a modest sell-off as the Fed is expected to just deliver 25bp of cuts (even the market continues to trade at about 30bps) and push back on large scale easing anytime soon.”
“A move should be tactical in nature and measured however. 109 in USDJPY marks the first notable technical barrier for the pair and soft-form neckline reverse head and shoulders established from the May 31 breakdown. A convincing break above this should put 110 as the next topside attractor. We are inclined to view this as a sufficient tactical move, but we note that failure to hold below 110 would have us reconsider a 112 extension risk.”
“The risk of an enhancement of forward guidance / JGB flexibility on the margin tilt to a weaker yen, as does emphasis or concern over a strong yen. We do not see the BOJ endorsing a yentervention type of a stance, as that would trigger a political war of words with the US administration over currency dynamics taht Japan will be keen to avoid. Rather, we think benign – and typical – assurances that officials will be watching yen performance should reinforce that the BOJ want to avoid a strong yen as the Fed embarks on an easier path. Trade details: enter long at 108.60, target 110, stop at 107.50.”
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