Nomura Holdings Inc. said that as Japanese yields rise, Japanese investors withdraw from US assets, and with Washington’s implicit pressure on exchange rates during trade negotiations, the yen could rise by about 6% against the US dollar in the coming months.
One of Japan’s largest investment banks currently advises shorting the USD/JPY, with a target of raising the exchange rate from the current level of around 145 yen to 136 yen by the end of September. Yusuke Miyairi, Yujiro Goto and Dominic Bunning of Nomura Securities wrote in a report to clients on Friday that they expect the Bank of Japan’s steady interest rate hikes to “encourage domestic investors to increase holdings of domestic bonds rather than overseas bonds.”
The team also pointed out that if the yen depreciates, especially during the sensitive bilateral trade negotiations, the US concerns over the USD/JPY exchange rate might “intensify”. Although analysts do not expect any symbolic foreign exchange agreement between the US and Japan, “the market still anticipates a kind of ‘unspoken understanding’ to push the dollar lower”.
In its semi-annual currency report released on Thursday, the US Treasury Department called on the Bank of Japan to continue raising interest rates. The Treasury said that monetary policy tightening would help “normalize the weakness of the yen against the dollar” and “achieve the much-needed structural rebalancing in bilateral trade”.
In early May, after breakthroughs in the China-US trade negotiations led to widespread selling of safe-haven assets such as the Japanese yen, the Nomura team withdrew its previous short recommendation on the USD/JPY. Nevertheless, the yen has still appreciated by approximately 3.5% against the US dollar so far in the second quarter.
On Friday, strategists at another major Japanese bank, MUFG, reiterated the view that investors should sell the US dollar against the Japanese yen. MUFG’s target is for the USD/JPY exchange rate to reach 138.30 yen. Among all the sell-side currency forecasts compiled by Bloomberg, the market consensus is that the USD/JPY exchange rate will reach 142 yen in the third quarter.
Isabel Schnabel, a member of the Executive Board of the European Central Bank, believes that as investors turn to Europe, it is a favorable time to strengthen the global position of the euro.
She said at a panel discussion of the 31st Dubrovnik Economic Conference on Saturday that there is now a “window of opportunity” to enhance the international status of the euro.
Earlier at the same meeting, she said there were signs that investors were looking to the African continent to diversify their portfolios, which she called a “positive confidence effect”.
These remarks confirm the statements of policymakers including Christine Lagarde, the bank’s president, and suggest that officials are trying to turn President Donald Trump’s attacks on global trade and US institutions to their advantage. So far this year, investors have been selling the dollar, which has fallen against all other major currencies tracked by Bloomberg.
In recent weeks, Schnabel has emphasized the need for a large European bond market to strengthen the global position of the euro and suggested considering joint bond issuance to fund public goods in Europe.
In an interview with El País published on Sunday, the governor of the Bank of Spain, José Luis Escrivá, also emphasized that “the dominance of the US dollar as an international reserve currency seems to be reaching its peak.”
He said: “The euro has the potential to compete with the US dollar, especially if it maintains macroeconomic and institutional stability. With a strong economy and a larger trade volume than the United States, Europe has room to enhance the euro’s status as a reserve and reference currency in international trade, which is still dominated by the US dollar.”
Technical analysis:
Gold: We have already warned in our article last Friday to be cautious of the wide fluctuations after the non-farm payroll data. Currently, the price has cleared the liquidity below 3308. Today, we should actively look for bullish signals of a rebound to try. The key can be focused on the recovery of the supply zone resistance at 3305/15. For detailed positions, please consult the plugin.
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The Nasdaq: The price rebounded to above 21,800 and then rose sharply before falling back. Although it did not clear the liquidity above 21,942, we do not advocate the strategy of chasing gains or selling losses, especially chasing gains, which is more in line with the current market trend characteristics. For today, we continue to retain the operation strategy of going long after clearing the liquidity and then catching the top signal in the opposite direction; at the same time, we also keep an eye on whether there is a further correction if it breaks below the 21,600 level. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: We clearly pointed out in the article last Friday that there was no particularly good opportunity to participate when the price was between 61 and 64. However, only after breaking above 64 can we consider the signal of momentum breakthrough. Currently, after the price has broken through 64, there is a very obvious pinbar pullback. For today, we suggest observing the signal of momentum breakthrough within the existing range. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
At 17:00, Elbersen, a member of the Executive Board of the European Central Bank from Germany, will deliver a speech.
20:00 National Economic Confidence Index of Canada (to 0606)
22:00 US Wholesale Sales for April
