Westpac look for a short term dip in USD/JPY

Westpac contemplates “A short-term JPY opportunity amid long-term headwinds?”

In summary from the note:

A textbook case for a quick USD/JPY reversal seems to be developing.

  • The pair has been spinning its wheels between 150-151 recently, even as the hawkish repricing in US rates has lost momentum.
  • At 4.15-4.35%, long term US yields are more appropriately calibrated for a bumpier disinflation glidepath and 3% growth, than they were at the start of the year.
  • Fed fund expectations are not as obviously skewed relative to the Fed’s dots either.
  • The “no landing” narrative has legs, but it’s not clear conditions are ripe for either Fed officials or markets to seriously contemplate pricing just -50bp or -25bp in Fed cuts this year.

On the JPY-leg, Q2 BoJ rate hike bets are solidifying, and JPY intervention risk lurks at higher levels.

  • There’s surely better value selling USD/JPY into 151 as a short-term trade.
  • But we have a hard time seeing USD/JPY trading sustainably lower, say sub-146, due to ongoing structural JPY headwinds.

Looks like a technical roll over to me, yeah:

This article was written by Eamonn Sheridan at www.forexlive.com. Source