14 Dec 2015
USD/JPY a tactical long on FOMC dips? - Deutsche Bank
FXStreet (Guatemala) - Analysts at Deutsche Bank explained that a USD/JPY drop with US rate hike would be chance for tactical long into 2016.
Key Quotes:
"The Fed's widely anticipated rate hike on Wednesday has been largely discounted in the markets. Moreover, the global economy including the US is not strong enough to sustain risk-on sentiment in the markets as in October-
November. Risk-off factors are being highlighted at the moment, including cheap oil, unsteady credit markets, and worries that China will allow a deeper drop in the RMB against the dollar with its announcement of a new trade- weighted rate peg. We consider RMB fears overdone, but the worries underline the nervousness of the markets. We suspect that the initial reaction of the USD/JPY to a Fed rate hike may not necessarily be bullish.
At the same time, we do not consider global economic prospects poor enough to justify the kind of undue pessimism seen in August-September after the China shock. Our economic team predicts that growth next year in the US, eurozone, Japan and world will be slow but solid at 2.1%, 1.6%, 1.5% and 3.3%, respectively. Based on these circumstances, we expect one rate hike each in March and June next year and six in 2017 (though this will depend on economic data). This should support an uptrend in the dollar for the next 1-2 years.
The BoJ announced its quarterly Tankan survey of business today. Its benchmark large manufacturer and non-manufacturer business condition DI was 12 and 25, both unchanged from the last survey and slightly better than the projected 11 and 23. Our economist feels that the Japanese economy has been returning to a steady recovery path. It suggests little chance of yen appreciation from risk-off factors on the Japanese side. The BoJ’s MPM is expected to keep current QQE on Friday.
We believe the USD/JPY will continue to edge higher, while experiencing brief bouts of stagnancy and volatility every some months. Our recommendation remains a tactical approach: a long position accumulated by buying on weakness at ¥120 or lower, and gradual profit-taking on rally, e.g. ¥120, ¥123 and ¥126."
Key Quotes:
"The Fed's widely anticipated rate hike on Wednesday has been largely discounted in the markets. Moreover, the global economy including the US is not strong enough to sustain risk-on sentiment in the markets as in October-
November. Risk-off factors are being highlighted at the moment, including cheap oil, unsteady credit markets, and worries that China will allow a deeper drop in the RMB against the dollar with its announcement of a new trade- weighted rate peg. We consider RMB fears overdone, but the worries underline the nervousness of the markets. We suspect that the initial reaction of the USD/JPY to a Fed rate hike may not necessarily be bullish.
At the same time, we do not consider global economic prospects poor enough to justify the kind of undue pessimism seen in August-September after the China shock. Our economic team predicts that growth next year in the US, eurozone, Japan and world will be slow but solid at 2.1%, 1.6%, 1.5% and 3.3%, respectively. Based on these circumstances, we expect one rate hike each in March and June next year and six in 2017 (though this will depend on economic data). This should support an uptrend in the dollar for the next 1-2 years.
The BoJ announced its quarterly Tankan survey of business today. Its benchmark large manufacturer and non-manufacturer business condition DI was 12 and 25, both unchanged from the last survey and slightly better than the projected 11 and 23. Our economist feels that the Japanese economy has been returning to a steady recovery path. It suggests little chance of yen appreciation from risk-off factors on the Japanese side. The BoJ’s MPM is expected to keep current QQE on Friday.
We believe the USD/JPY will continue to edge higher, while experiencing brief bouts of stagnancy and volatility every some months. Our recommendation remains a tactical approach: a long position accumulated by buying on weakness at ¥120 or lower, and gradual profit-taking on rally, e.g. ¥120, ¥123 and ¥126."