USD/JPY is consolidating after a sharp 6% drop from 11 July, when soft US CPI data and strategic Japanese FX intervention took its toll, ING’s FX strategist Chris Turner notes.
“Speculative Yen shorts in Chicago futures markets, in the week to 23 July, had scaled back their positions by 40% over the prior two weeks. This community probably cut positions a little further later last week when USD/JPY traded on a 152 handle. It seems fair to assess that the speculative market is a lot better balanced than it was at the start of July.”
“Tomorrow's BoJ/Fed combination will of course have a big say on whether this USD/JPY correction goes much further. ING's house view of a 15bp BoJ hike and a dovish Fed argues that the correction extends, potentially close to 150.”
“However, the low volatility environment and already a large correction across risk assets this month warns that if the BoJ surprises us (not locals) with unchanged policy, USD/JPY could have a decent bounce to 157 and that a cross rate, like AUD/JPY, could have a sizable rally. We'll know a lot more this time tomorrow.”
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