Fx flash more downside in usdjpy or to stabilize 18 august 2016

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FX Flash

Group Economics Macro & Financial Markets Research

18 August 2016

More downside in USD/JPY or to stabilize?  USD/JPY likely to stabilize around 100 in the coming weeks

Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com

USD/JPY likely to stabilize around 100 in the coming weeks In our last FX Flash – USD/JPY to break below 100? on 16 August, we argued that market fundamentals do not support a stronger yen and any yen strength below 100 against the US dollar is unlikely to be sustainable. Our view has not waivered despite a slightly more dovish FOMC minutes released overnight. The latter has resulted in nominal yields in the US edging lower overnight. However real yields in the US have edged higher as inflation expectations in the US declined by a larger magnitude.

Real interest rate differentials; USD/JPY

USD/JPY overbought/oversold technical indicator

Level

%

Relative strength index

70

125

0.50

120

0.30

115 110

0.10

105

-0.10

100

-0.30

95 Jan-16

Mar-16

May-16

Jul-16

-0.50 Sep-16

60 50 40 30 20 Jan-16

USD/JPY (lhs) 10y US-JP inflation expectations adjusted yield spread % (rhs) Source: Bloomberg

Mar-16 May-16 Jul-16 Overbought/Oversold indicator

Sep-16

Source: Bloomberg

Since the July FOMC meeting, US data has been mixed. The US economy added 255k jobs in July and average hourly earnings accelerated mom, stronger than market expectations. Overall labour market conditions have improved. However there are no clear signs that inflation is accelerating with core PCE (Fed’s preferred measure of inflation) steady around 1.6% since the start of this year. Inflation expectations from the University of Michigan and New York Federal Reserve have also eased lower in recent months. Hence financial markets are unlikely to take huge directional bets in the US dollar ahead of Fed Chair Janet Yellen’s speech at Jackson Hole on 26 August.

Insights.abnamro.nl/en


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Fx flash more downside in usdjpy or to stabilize 18 august 2016 by ABN AMRO - Issuu