JGB TECHS: (U5) Rallies Off Lows

Goldman Sachs: "JPY: Takin' it slower, but still into you. The tariff detente has pushed down the odds of recession and justifiably, in our view, driven some further removal of risk premium across assets — and, of course, particularly the safe havens. But we still see two main reasons for continued Yen appreciation over time, even if the US does manage to avoid recession. First, Japan—like Europe and Taiwan— has been a major source of increasingly unhedged US portfolio inflows in recent years. This leaves scope for meaningful increases in hedge ratios, especially if the BoJ begins hiking again sooner than expected (i.e., further lowering hedging costs). Second, the Yen tends to have a positive beta to the Renminbi in pro-risk backdrops. If we see a gradual grind lower in USD/CNY and other key crosses in the regions, as we expect, that should also weigh on USD/JPY without additional recession concerns. We also expect there to be some lasting premium in the Yen, given its attractiveness as a portfolio hedge (it remains our favorite). As a result, we are revising our Yen forecasts to show a more gradual but still strengthening path. Our new forecast path is 142, 138 and 135 in 3, 6 and 12 months (from 138, 136 and 135 previously). That said, we think the risks still look skewed towards more rapid appreciation as recession risk remains elevated and markets have now shifted back to a more benign baseline." 

Oil prices had a mixed week driven by expectations on trade deals, Iran and forecasts for the outlook. On Friday they were higher as Iran’s foreign minister sounded less optimistic about an imminent deal with the US on its nuclear programme than another official earlier in the week. Meanwhile, an easing of sanctions on Russian fossil fuel is a long way off as it continues to bombard Ukraine despite the start of negotiations.

• WTI rose 1.4% to $62.49/bbl on Friday, close to the intraday high of $62.71, to be up 2.4% on the week and 7.4% in May to date. The downtrend remains intact and any rallies are seen as corrective. The bear trigger is at $54.67 and initial resistance at $63.46, 50-day EMA. The benchmark has started today 0.1% lower at $62.41.
• Brent was 1.2% higher at $65.33/bbl and 2.2% last week and 7.0% this week. It reached a high of $65.54 on Friday but still off Tuesday’s $66.81. It traded in a narrow range last week holding between initial resistance at $66.49, 50-day EMA, and $58.00, the bear trigger. Ongoing negotiations across the world mean that traders are hesitant to take on too much risk.
• The IEA continues to expect excess oil supply in 2025 and 2026, while the EIA said that it expects lower US output given current price levels. It estimates that a deal with Iran would increase global supply by 200-300kbd. The foreign minister noted on X that Iran was yet to receive an official US proposition and that the message has been “contradictory”, as cited by Bloomberg. 

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