In the past couple of days, USDJPY spot move has reversed the yen's depreciation that followed Trump's victory in the US presidential election. With USDJPY breaking the 200DMA (152) as well as 50DMA (150.58), the pair quickly trades down to 149.85 (on EBS). The differences in the direction of Japanese and US monetary policy are becoming more apparent. According to Fed Watch, the probability of a 0.25% interest rate cut at the next FOMC in December is now at 65%, up from 56% in the previous week. In contrast, the OIS market now estimates that the probability of an interest rate hike for the Bo] in next month is 66% (compared to slightly under 40% in the beginning of November, and slightly over 50% a week ago). With a couple more weeks to go until the December meeting and the view that more data will be available, the market judges that the dovish sentiment is rather weak and has further factored in an interest rate hike. The focus will be on upcoming December data, as well as the narrowing interest rate gap between Japan and the United States, creating a market mood that favors increased JPY buying and USD selling.- UBS Strategy
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