When evaluating the outlook for a currency pair, it is often the case that the newsflow and market focus on one side of the exchange rate dominates the other over a period of time. That has not been the case in USD/JPY this summer, Rabobank’s Senior FX Strategist Jane Foley notes.
USD/JPY to soften to the 142 area
“Indeed, the market panic earlier this month was triggered by abrupt and coincident changes in market expectations about both BoJ and Fed policy. Other factors, such as strained market positioning, also had a huge impact. While there has been a significant adjustment in positioning since then, the sharp moves in asset prices yesterday demonstrates that market sentiment remains nervous, although thinned holiday trading is likely exacerbating these moves.”
“Most activity in the last couple of weeks has been within the 145 to 147 area and there is a solid chance that this will continue to broadly hold USD/JPY in the near-term. This morning the USD is fighting back after yesterday’s sell off and we see scope for this to continue ahead of Fed Chair Powell’s testimony on Friday, suggesting scope for further upticks in USD/JPY.”
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