JPY: Goldman Sachs Revises Higher USD/JPY Forecast
The US bank has revised higher its USD/JPY forecast profile, see below for more details. The biggest negative for the yen will be the continued benign macro environment.
Goldman Sachs: "Not with a bang, but with a whimper; Revising our USD/JPY forecast. The Bank of Japan hiked rates for the first time in 17 years, and for just the fourth time since the introduction of the zero interest rate policy in 1999. While this marks another giant leap for the BoJ, we think it is a small step for the Yen, and one that is likely too tentative to overcome the broader macro backdrop. Fundamentally, as we discussed last week, we do not think the BoJ’s actions will prompt significant repatriation from Japan-based investors—that would need to come from a change in the returns available abroad. But, we also do not expect careful Fed cuts driven by cooler inflation to boost the Yen. If anything, the anticipation of adjustment cuts has reduced the probability of the recession risks that tend to activate the Yen’s safe-haven appeal, so we do not expect any compression in the forward rate differentials that tend to matter for JPY, even as the policy rate differential narrows a bit. While we expect Japan policy to continue to be sensitive to the exchange rate, it remains the case that the benign macro risk environment should weigh on the Yen over time. Given the recent changes in our Fed forecast, coinciding revisions to our US fixed income forecasts, and the relatively careful BoJ policy communication, we are shifting our USD/JPY forecast path higher again. We now expect USD/JPY to trade around 155, 150, and 145 in 3, 6 and 12 months (vs 145, 142 and 140 previously)."
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
USDCAD TECHS: Support Remains Intact
- RES 4: 1.3661 High Nov 27
- RES 3: 1.3623 61.8% retracement of the Nov 1 - Dec 27 bear leg
- RES 2: 1.3608 High Dec 13
- RES 1: 1.3586 High Feb 13
- PRICE: 1.3508 @ 16:39 GMT Feb 23
- SUP 1: 1.3413/3359 Low Feb 09 / Jan 31 and key S/T support
- SUP 2: 1.3343 Low Jan 12
- SUP 3: 1.3288 Low Jan 5
- SUP 4: 1.3229 Low Feb 1
The USDCAD trend structure remains bullish despite the sell-off late last week as well as through the Thursday open - a correction. Tuesday’s softer-than-expected CPI works in favour of further gains. The pair traded higher Tuesday resulting in a break of resistance at 1.3544, the Feb 5 / 6 high and bull trigger. This confirms a resumption of the bull cycle that started Dec 27 and opens 1.3623, 61.8% of the Nov 1 - Dec 27 bear leg. On the downside, key support to watch lies at 1.3359, the Jan 31 low. Initial firm support has been defined at 1.3413, the Feb 9 low.
AUDUSD TECHS: Firmer Close Despite Bearish Trend Signals
- RES 4: 0.6900 High Jun 16 and a key resistance
- RES 3: 0.6871 High Dec 28 and the bull trigger
- RES 2: 0.6729/71 High Jan 12 / 3
- RES 1: 0.6625 High Jan 30 and key resistance
- PRICE: 0.6561 @ 16:38 GMT Feb 23
- SUP 1: 0.6443 Low Feb 13
- SUP 2: 0.6412 76.4% Fibonacci retracement for Oct - Dec upleg
- SUP 3: 0.6360 Low Nov 14
- SUP 4: 0.6339 Low Nov 10
AUD/USD rallies were sold into the Thursday close, with prices returning negative despite printing a new multi-week high at 0.6595. Further losses would see the bearish trend resume, confirming the latest bounce as corrective. Last Tuesday’s initial break lower reinforced the bearish theme. To the downside, sights rest on 0.6412, a Fibonacci retracement. Moving average studies are in a bear-mode set-up, highlighting a clear, albeit weaker, downtrend. Key resistance to watch is 0.6625, the Jan 30 high. Initial resistance is at 0.6546, the 20-day EMA and a level pierced this week.
US TSYS: Markets Roundup: Tsys Off Lows, Risk Unwinds Into Weekend
- Not much of a change since midday where Treasury futures climbed to session highs after a weaker open where Mar'24 10Y futures tapped the lowest level since late November '23.
- Treasury curves bull flattened (2s10s -4.271 at -43.590 -- Jan 3 low) on the bounce, no obvious headline driver, though trading desks widely citied a (modest) reversal in equities off contract highs as trading accounts took profits ahead the weekend.
- Mar'24 10Y futures had tested Thursday lows overnight (109-09) neared the 110 handle in late trade, climbing to 109-31 (+15), 10Y yield -.0629 at 4.25789%. Heavy volumes (TYH4>3.8M) tied to the roll to Jun'24 contract continues. Technical resistance above at 110-15.5 (20-day EMA).
- Projected rate cut pricing holds steady for the next couple meetings while June is off this morning's lows: March 2024 chance of 25bp rate cut currently -2.0% w/ cumulative of -0.5bp at 5.324%; May 2024 at -21.2% w/ cumulative -5.8bp at 5.271%; June 2024 -62.6% vs. -55.4% earlier w/ cumulative cut -21.4bp at 5.132%. Fed terminal at 5.33% in Feb'24.
- Look ahead: Next Monday sees New Home Sales (680k est vs 664k prior), MoM (2.4% est vs. 8.0% prior) at 1000ET, followed by Dallas Fed Mfg Activity Index at 1030ET. Flurry of Treasury auctions start Monday due to the short month: $63B 2Y note and $70B 26W bills at 1130ET, followed by $79B 13W bills and $64B 5Y Note auctions.
