FOREX: Barclays See Further Upside Risks for Japanese Yen
Apr-16 15:10
- Beyond tariff-induced risk aversion and broad USD weakness, Barclays see further upside risks to the JPY as US-Japan negotiations commence with a wide range of potential outcomes. Beyond the discussions on goods trade, currency negotiations may form part of a potential Trump Administration strategy to reshape the global monetary order, the so-called 'Mar-a-Lago Accord.'
- A potential currency agreement could range from an outright accord on USD-selling interventions on one extreme, to a mere verbal communication of a desire for a weaker USD or regarding concern over JPY weakness. Another indirect agreement could come in the form of a commitment to maintain Japan's positive growth dynamics on wages, thereby ensuring continued BoJ rate hikes and hence tightening yield differentials.
- Barclays continue to see upside risk to the JPY beyond their 142 forecast. While Japan may agree to some yen strength, USDJPY below 130 could raise concerns, according to the bank.
- While details on official discussions are likely to dominate the headlines, it is worth noting that on Thursday, a speech by BoJ Board Member Nakagawa is also scheduled.
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USD: Broader Dollar selling is going through
Mar-17 15:07
- Some downside continuation for the Dollar, with broader selling seen across the board, testing new intraday lows against the EUR, GBP, AUD, ZAR, SGD, SEK, and CHF, while CNH, CNY are paring earlier losses.
- Cable look to test the immediate resistance right here at 1.2988 High Mar 12.
- Resistance in EURUSD is at 1.0947 High Mar 11.
- US Tnotes is back at session high (lower Yields) and this is likely helping this latest leg lower in the Greenback.
OAT: Ratings Relief & Equity Bid Promotes Spread Tightening
Mar-17 14:59
OATS continue to benefit from ratings relief, with further tailwinds coming via the uptick in equities.
- That has outweighed domestic political tensions after PM Bayrou chose not to revert the retirement age to 62 from 64. Also note that this choice increases Bayrou’s fiscal credibility, countering at least some of the political risk.
- 10s struggling to break below 67bp vs. Bunds.
- As noted earlier, further downside traction in the 10-Year OAT/Bund spread would generate the lowest close since July ’24, with next support located at ~63bp, the 61.8 retracement of the June-Dec ’24 widening, followed by the July ’24 closing low at 62.7bp.
- Citi note that Friday’s affirmation from Fitch (AA-; Outlook Negative) “kept the onus on fiscal consolidation. The risks ahead come from Fitch’s lower-than-consensus deficit forecast of 5.4%/GDP in ‘25 and view that any defence spending increase will be funded by spending cuts. Still, this eliminates near-term rating risk, unless pension reform is reversed in the coming quarters. While other risks lurk for OATs (including the court verdict on Le Pen and pension reform negotiation deadline in April), the market is likely to wait for these to manifest before building up any fresh shorts”.
NZD: NZDUSD is extending gains through 0.5800
Mar-17 14:53
- The NZDUSD is close to 1% up on the day (0.92%), the cross is attempting to clear the 0.5800 figure, so far printing a 0.5803 high, best level since mid December.
- A small resistance is seen at 0.5818, the 12th December high, while better will be seen at 0.5846, the 38.2% retracement of the October/February range.
