Best/worst performers in majors vs USD today: JPY: 0.4%, EUR: 0.3%, NZD: 0.2%, AUD: 0.1%, CHF: 0.1%, CAD: -0.2%.
Japanese Yen Rebounds After Suffering Largest Drop in 18 Months.
$EURGBP Near-term support is in the 0.7683-0.7703 area.
BOJ Officials are said to want government to do more for growth.
The yen languished near a three-week low on expectations the Bank of Japan could start lending to banks at negative rates, while sterling hit a five-week high on hopes for rise in support for Britain staying in Europe. The yen fell to as low as 111.90 in early trade, its lowest level in more than three weeks, before paring losses to trade at 111.47, up 0.3 per cent from late US levels on Friday.
Price moves are likely to have been exaggerated as a holiday in Australia compounded a lack of liquidity in early Monday before Asian trade.
On Friday, the yen fell 2.1 per cent – its biggest fall since the day BOJ Governor Haruhiko Kuroda unleashed his second easing in Oct 2014 – after Bloomberg reported that the Bank of Japan is considering applying negative rates to its lending program for financial institutions.
The big fall was likely to have been driven by selling by speculators who held a huge amount of yen long positions. Data on Friday showed that currency speculators held a record yen long position in the Chicago futures exchange.
But with much of any further easing already priced in, the yen may have limited room to fall further after the BOJ’s policy meeting on April 27-28, some analysts said. “The hurdle for the dollar/yen to rise further has been heightened after the report. If the BOJ comes up with what’s already reported and a bit of stock purchases, that would lead to buy-on-rumour-sell-on-fact type of dollar/yen selling,” said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
It could take Britain 10 years to negotiate a trade deal with the US if it votes to leave the EU, Barack Obama has said. Speaking to the BBC at the end of his final visit to the UK as president, Obama said: “It could be five years from now, 10 years from now before we’re actually able to get something done.” Obama is in the last nine months of his presidential term and has spent the past three days in London as part of a state visit. During that time he urged Britons to remain part of the EU as they prepare to vote on membership of the 28-country bloc at the 23 June referendum.
Morgan Stanley predictions: USD: Staying Offered. Bearish. The cyclical rebound in China’s growth has supported global risk appetite, and investors’ hunt for yield has brought global risk premium down. In this environment, low US real yield is unattractive and the USD should continue to come under selling pressure. This week, the FOMC meeting will be in focus. Recent mixed US data indicates that there is unlikely to be a material change in the Fed’s dovish stance, which means the USD will remain offered for now.
EUR: Range Bound Post ECB. Neutral. We maintain our view for EUR to be range bound following the recent rather uneventful ECB meeting. The ECB’s language on the exchange rate remained relatively benign but we do expect the ECB to push back If EUR appreciates from current levels. Furthermore, while the economy appears to have had a strong 1Q, forward-looking indicators point to a sluggish 2Q while Brexit risks and signs of increasing populism (such as the Dutch referendum result) will also limit the EUR’s upside. We remain long-term bears.
JPY: Tactical Weakness. Neutral. Watch: CPI, Industrial Production, BoJ Rates Decision We think USDJPY could tactically rebound to 112.50, as strong global risk appetite reduces the demand for safe haven assets and pauses JPY-supportive repatriation flows by domestic investors. However, our medium term bullish view on JPY has not changed and we would look to sell at 112.50. This week, CPI numbers and the BoJ meeting will be in focus as markets assess whether the BoJ still has policy tools left to curb the unwanted currency strength.
NZD: Focus on RBNZ. Neutral. Helped by the global risk-on sentiment, CPI figures coming in line with expectations and a solid rise in dairy prices, NZD has broken the 0.7000 level for the first time since June 2015. However, we are cautious about the currency strength as the NZD TWI currently trades at a 4% premium to the RBNZ’s Sep-16 forecast, which is the threshold.
Bond investors are taking bigger risks than ever before. Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options. Such low yields are unnerving some of the most famous names in the bond market.
