USD/JPY bullish momentum unlikely if December Fed rate hike expectations rise – Deutsche Bank

Sandeep Kanihama FXStreet Contributor

The USD/JPY has remained in range trading around ¥110 with no strong motivating factors while the overseas speculators still maintain some long positions, and the unwinding prior to events pressured the rate below ¥110, explains Taisuke Tanaka, Strategist at Deutsche Bank.

Key Quotes

“Subsequently, short positions constructed around the low end of the range were partially unwound before the weekend, boosting the dollar back to ¥110.”

“The UK election left Prime Minister Theresa May's Conservatives with a reduced presence in Parliament, raising concerns of a cliﬀ edge risk through the Brexit deadline of FY3/19 without a clear resolution in UK-EU negotiations. With growing speculation as well over the Italian election, European fears remain rife. Still, UK and European events have been distant occurrences for yen markets, which have been little aﬀected.”

“The big event this week is the FOMC meeting on Tuesday and Wednesday. The markets fully anticipate a 25bp rate hike, and the focus is rather on hints toward the next rate increase. However, the Fed might not send a strong signal given the recent softness in job data and the CPI. In that case, communications regarding the Fed's balance sheet adjustment plans will be a point of concern. If this is seen as taking place from September, a December rate hike scenario could become the more consensus view. A six-month gap in Fed rate action following an increase this month would curb UST yields as FX movers, which would sap the upward momentum from the USD/JPY.”

“The BoJ is expected to reaﬃrm current policy at its upcoming Monetary Policy Meeting on 15-16 June, so the event should be little factor for yen markets.”

“We maintain our view of a steady uptrend in the USD/JPY over the medium term in line with the strength of the US economy and resulting rate hike steps by the Fed. In the short term, however, the markets should continue to ﬂuctuate within the present range for some time even with a Fed rate hike this week. We continue to recommend tactical buying on weakness in the USD/JPY at the lower end of the current range.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

EUR/USD looks to regain the 200-day SMA

EUR/USD regains some balance and trade just above 1.1600 the figure ahead of the opening bell in Asia. The pair initially dipped to the 1.1530 zone for the first time since November, always following the stronger US Dollar and the marked flight-to-safety in the context of the ongoing Middle East crisis

GBP/USD slips below key averages as geopolitical risks mount

GBP/USD fell about 0.35% on Tuesday, settling around 1.3350 after slipping below the 200-day Exponential Moving Average for the first time since early December. The pair has pulled back sharply from its late-January high near 1.3870, shedding over 500 pips in a series of lower highs and lower lows.

Gold moves closer to $5,150 amid sustained safe-haven flows

Gold climbs back above $5,100 during the Asian session on Wednesday, moving away from an over one-week low, touched the previous day. Sustained safe-haven flow, amid escalating geopolitical tensions in the Middle East, acts as a tailwind for the bullion. However, a bullish US Dollar and reduced bets for more aggressive easing by the US Fed might keep a lid on the non-yielding yellow metal ahead of the US ADP report and ISM Services PMI later today.