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- Path towards 1% for 10y JGB yields should translate into lower USD/JPY and EUR/JPY – SocGen
Path towards 1% for 10y JGB yields should translate into lower USD/JPY and EUR/JPY – SocGen
USD/JPY trades at pre-BoJ level after rebounding on Friday from 138.07 low. Economists at Société Générale analyze the pair’s outlook.
Proverbial dam will not burst until the 200-DMA at 136.66 gives way
The abrupt recovery appears overdone based on yield differentials but corroborates with gains in the Nikkei. The positive correlation between USD/JPY and the Nikkei has been a constant this year.
In the longer term, the path towards 1% for 10y JGB yields should compress the spread over Treasuries and Bunds and should translate into lower USD/JPY and EUR/JPY.
Viewing the price action through the lens of technicals, the proverbial dam won’t burst until the 200-DMA at 136.66 gives way.
The danger of a contrarian squeeze higher cannot be underestimated if US payrolls surprise to the upside on Friday and US 10y yields ratchet back over 4%. Three successive declines in US jobless claims reaffirmed the resilience of the labour market and could translate into a positive payrolls surprise and/or a lower unemployment rate. This would send a warning to investors to brace for another choppy month of August for bond markets.
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