Greenback is unlikely to go through JPY110 straight away - BBH

Research Team at BBH, notes that the dollar is pushing above resistance around JPY109.50, helped by rising equity markets and the rise in US yields.

Key Quotes

“Ideas that Q1 GDP contracting will boost the chances for fiscal stimulus in Japan miss the point. The fiscal support plans on in the works. Investors cannot say GDP is not a good metric of the state of the economy and then expect policy makers to put so much emphasis on a report whose components are already known.

Moreover thinking that a small decline is materially different from a small gain for policymakers is to be fooled by the precision that measuring something to a tenth of a decimal point pretends. The BOJ estimates that trend growth is about 0.2%.

Speculators in the futures markets are holding a gross and net long yen position that is near record levels. Given the interest rate differentials, it is expensive to be short dollars and long yen without momentum. Some of the long yen positions may feel trapped, and may now be looking for an exit. The greenback is unlikely to go through JPY110 (of psychological importance) straight away. Positioning warns that the pullback will likely be shallow.”