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Mar 06 - 10:55 AM

Westpac: Short-term Trade Opportunity in Selling USD/JPY

By eFXdata  —  Mar 06 - 09:30 AM

Synopsis:

Westpac identifies a short-term trading opportunity in selling USD/JPY, targeting a move towards 146. The recent stagnation of USD/JPY around the 150-151 range, despite a pause in the hawkish repricing of US rates, suggests a potential reversal. US long-term yields have adjusted to a more realistic outlook for disinflation and growth, while Fed fund expectations align more closely with the Fed's projections. Despite the enduring "no landing" narrative, there's skepticism about the market pricing only minor Fed cuts this year.

Key Points:

  • USD/JPY has hovered between 150-151, showing resilience even as the momentum for a hawkish shift in US rates wanes.
  • Adjustments in long-term US yields and Fed fund expectations now better reflect the economic landscape, reducing the urgency for aggressive Fed rate cuts.
  • Solidifying expectations for a Q2 BoJ rate hike and potential JPY intervention risk at higher levels suggest a tactical sell opportunity for USD/JPY.
  • Structural JPY headwinds may limit a sustained move below 146, but selling into the 150/151 level presents a viable short-term strategy.

Conclusion:

Westpac sees selling USD/JPY around the current levels as a strategic short-term trade, with a target move towards 146. While structural challenges for the JPY persist, recent rate adjustments and solidifying BoJ hike expectations provide a conducive environment for a tactical reversal. Nonetheless, the likelihood of USD/JPY trading significantly lower remains tempered by ongoing JPY structural headwinds.

Source:
Westpac Research/Market Commentary

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