By eFXdata — Mar 13 - 01:30 PM
Societe Generale Research discusses the current market conditions and sees a scope for further USD decline vs the EUR and JPY.
"Rising yields (and inverted curves) can cause trouble for under-regulated financing institutions whose exposure is concentrated in recently-booming but post-peak sectors. Public sector support followed by a review of regulation seem certain and if the S&L crisis is a model of what happens next, we are closer to the peak in rates than the market thought, and with 12 months the US economy will slip into a relatively mild recession that validates the yield curve's inversion. After that, maybe we'll get another 'Great Moderation' between 2024 and 2030?," SocGennotes.
"This could all go wrong of course, and markets will be nervous and volatile for a while. That makes the yen an easier buy than the euro, initially. USD/JPY continues to track yield differentials and the early 1990s comparison can encourage yen bulls: USD/JPY peaked a over 150 in April 1990, before falling to 120 as rates fell to 3%, and kept on going, falling below 80 in 1995 (though the last bit is very unlikely to be repeated). The euro needs more comfort that contagion is avoidable, but the China-sensitive currencies (AUD and NZD in G10) benefit from Fed rethink and continued positive data from China's reopening," SocGen adds.
Société Générale Research/Market Commentary