Investors reduced short JPY positions as the Japanese Ministry of Finance suggested that the market should be aware of one-way bets against the currency.
MAJOR HEADLINES – PREVIOUS SESSION
Another day with lack of interesting data, the USDJPY and otherJPY-related crosses fell dramatically after the Japanese Minister of Finance warned investors against betting one way against the Japanese currency. In our mind this is another warning from the Bank of Japan that the normalisation of interest rates is getting closer. In recent weeks, we have seen Fujii commenting over and over again that the "currencies should reflect economic fundamentals" which we interpret in the same way, hence we are getting closer to a rate hike cycle, but the iniation of the rate hike cycle will not commence yet. Considering the recent data from Japan, inflation has not yet been able to pick up and we remain with the view that unless we see rising inflation, the Bank of Japan will not start their monetary tightening. With risk aversion picking up in the market however, we see this as the main factor for today's sell-off in USDJPY, EURJPY etc.
With regards to USD-crosses, we still think that USD-weakness is the theme, which should trigger further upward movement in GBPUSD and EURUSD. In EURUSD, we are buying the break of 1.3476 bid, stop offer at 1.3453 targeting 1.3550.
From previous sessions:
Range trading goes on as there are no triggers or news flow from the major economies leading to a maret with low volatily. We still see the range to be played in EURUSD as 1.3371-1.3473 and the clear break of those will open up for further direction. Overnight the Asian investors sold off the US treasuries supporting the USD against other major currencies. However after midday in Europe we saw a reversal in the USD to above the 1.34 figure. From our point of view we still think the USD-weakness theme is the right thing and see the USD lower in the near term, whih will lead to a test of the 1.35 figure. No interesting news today except from the Canadian retail sales coming our lower than forecasted sending USDCAD above the 1.07 figure again.
The minutes to the BoE MPC's June meeting revealed members just a single vote away from a back-to-back hike (having already lifted in May). The MPC agreed that growth was robust in Q2. The hawks said that since there'd been nothing in the to suggest anything other than another hike being appropriate, there was no need to wait. By hiking in June a higher peak at some stage in the future could be avoided.
MPC doves suggested that UK debt levels required a more measured approach, and with signs of a softening in the housing market there was no need to rush. The doves also cited the risk that higher household debt levels might increase the final impact of interest rate changes and that the typically the impact on consumer spending is lagged.