USD/JPY: Near-term prospects for the US dollar seem positive – MUFG

Analysts at MUFG Bank, have the trade idea of long USD/JPY, with a target at 112.50 and a stop-loss at 108.75. They point out US yields are unlikely to lunge from current levels which should support the pair. 

Key Quotes:

“This USD/JPY trade idea was established last week and suffered instantly with the release of the much weaker than expected US consumer confidence data that saw yields and the US dollar decline in tandem late on last Friday. USD/JPY recouped some of those losses this week but remains below our entry point. Still, we have decided to maintain this view.”

“The near-term prospects for the US dollar seem positive as risk conditions remain fragile. A further notable deterioration in investor risk appetite would probably see the yen strengthen although in recent bouts of risk off, the overall demand for the dollar has limited the downside for USD/JPY specifically and JPY gains have been more pronounced versus non-dollar currencies.” 

“A more cautious speech by Fed Chair Powell at Jackson Hole next week is unlikely to drive yields lower in the US. Indeed, if the speech was to help restore risk sentiment, yields could be supported which combined could be a recipe for USD/JPY advancing higher. The main risk here is simply another dive lower in US yields which from these levels we see as less likely – hence we see reason to hold this trade view for now.”