Investors are creatively betting on the differences in interest rate trends among major economies, seeking ways to hedge against dollar volatility and using European currencies to bet on the yen.
Donald Trump’s trade tariff plan has brought uncertainty to the market, and the dollar’s strategy is facing a test. Investors are questioning whether the US president’s proposal will be a bullish force for the dollar or just a negotiating tactic.
As an alternative way to bet on the strengthening of the yen, some companies are using strategies involving European currencies rather than the US dollar to profit from the widening interest rate differential with Japan.
Companies such as Vanguard Asset Management, Russell Investments, RBC BlueBay Asset Management and Candriam SA all favor various transactions reflecting this theme, such as shorting the euro, the Swiss franc and the pound against the Japanese yen. This is because it is believed that these transactions can bring higher returns and are safer than shorting the increasingly unpredictable US dollar.
Adrian Boehler, global head of macro distribution at UBS, said: “One way to trade the yen without taking on dollar risk is to trade it against a cross currency pair. People are choosing to express higher confidence in the yen by avoiding direct dollar/yen trading and thus not taking on the headline risk associated with Trump.”
After about five years of general weakness, the yen finally seems ready to shed its image as a low-yield currency. The Bank of Japan has indicated that it will continue to raise interest rates, acknowledging that Japan is no longer in a deflationary state.
As the Bank of Japan is preparing to further tighten its policy, while many European countries are facing the prospect of significant interest rate cuts to support their economies, investors are particularly keen on supporting the Japanese yen against European currencies.
Traders expect the European Central Bank to cut interest rates at least three more times this year by a quarter of a percentage point each, while the Federal Reserve is only expected to do so once. This pattern could weaken the euro. Meanwhile, in Japan, signs of accelerating wage growth have strengthened expectations that the Bank of Japan will raise interest rates at least once more by 2025.
Juntaro Morimoto, a senior analyst at Sony Financial Group in Tokyo, said, “From both economic and political perspectives, the euro is under downward pressure against the yen.”
As a result, Citigroup, Rabobank and Danske Bank all predict that the euro will fall below 150 yen against the Japanese currency by the end of this year. Currently, the euro is trading at 160 yen against the Japanese currency. Danske Bank expects the euro to decline by 12% to 141 yen against the Japanese currency.
Technical analysis:
Gold: After the late hours of last Friday, the price exhibited a typical liquidity sweep pattern. On Monday in the Asian session, the price rebounded for correction, and this trend is expected to continue as the US market closes early for the holiday this evening. We will keep an eye on the 2900/05 area; if it holds, a buy attempt can be considered. For detailed positions, please consult the plugin.
(15-minute Gold Chart)
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Crude oil: The price has returned to the vicinity of the recent low. In this range, it is advisable to prioritize buying at lower levels. For today, we will focus on the performance of the blue momentum breakthrough area and can set up a buy stop operation. For detailed positions, please consult the plugin.
(15-minute crude oil chart)
If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
GBP/USD: The price has returned to the central level of 1.2580 from the previous trading day for consolidation. We believe that the breakthrough of the blue area’s momentum should be closely watched within the day. If it can be accompanied by a wave at the opening of the European session, a buy stop operation can be attempted once. For detailed positions, please consult the plugin.
(GBP/USD 15-minute chart)
If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg.
Today’s key financial data and events to focus on:
18:00 Eurozone Seasonally Adjusted Trade Balance for December (billion euros)
At 19:00, the President of the German Central Bank, Joachim Nagel, will deliver a speech on the German economy.
22:30 Philadelphia Fed President Harker delivers a speech.
At 23:20, Federal Reserve Governor Bowman will deliver a speech.
