Forex Investment and Currency Trading

With bond yields higher in the US overnight, USDJPY has continued its drift upwards to target stops at 91.20. Comments from outgoing FinMin Yosano on his last day on the job were ignored, with the incoming Fujii seen as less interventionist. We remain close to the 90 barrier and the assumption for the moment is that we will likely have another go at that over the next few sessions. But medium-term it seems that some of the momentum that underpinned recent JPY appreciation may be coming to an end. Portfolio flows are expected to become less important as hedge ratios reach an upper limit; and equity inflows may slow as Japanese stocks suffer under the pressure of the strong yen. In addition, investment income from Japanese holdings abroad has shown signs of weakening on lower rates. Overall the pressure on USDJPY to fall is likely to ease over time, and with IMM data showing positioning already skewed towards long JPY, the risk may be that the pair could stage a recovery.

EURJPY rejects break of trendline support, near-term rebound possible
EURJPY has challenged trendline support, but has rebounded sharply from the lows around 131.30. Although the risks remain on the downside, with the yen expected to remain well supported in the current environment, IMM positioning in USDJPY suggests that there is potential for another leg in the rebound. Concerns of US-China trade protectionism have the potential to increase asset market volatility, impacting risk appetite. Moreover, the eurozone data is unlikely to help the euro. The German ZEW survey results for September were weaker than expected, despite the strong performance of equity markets recently. Indeed, the ZEW is normally strongly correlated to the performance of financial markets. The sentiment component showed just a modest increase to 57.7 in September from 56.1 in August (consensus 60.0). The current situation component improved to -74.0 in September from -77.2 in August, but failed to match market expectations for a reading of -67.5.