3 Reasons Why USDJPY is Headed Lower
We kicked off the new week with renewed demand for US assets. The S&P 500 extended last week’s gains as the greenback traded higher against all of the major currencies. By sparing Mexico punitive tariffs and US corporations, a major threat to earnings, the immigration agreement between the US and Mexico provided a big boost for risk appetite. The US dollar benefitted the most because next to Mexico, the threat to the US economy or corporate earnings was the greatest risk. While this deal eases concerns about the US economy’s second half performance, we believe that the dollar will fall further in the coming days and weeks
#1 – First and foremost, Mexico’s foreign minister said on Monday that the “fully signed and documented agreement” touted by President Trump does not exist. He said there is an understanding that migrant flow will be evaluated and discussions about more material changes will be held if the number of migrants is not significantly reduced.
#2 – Secondly, the US economy is slowing. Job growth last month was significantly lower than expected and we are looking for this week’s inflation and retail sales reports to miss because oil and gas prices are falling and the labor market is weakening.
#3 – Third, the biggest revelation last week came not from data but the central bank.Federal Reserve Chairman Powell said they are closely monitoring the implications of the US’ trade disputes on the economy and “will act as appropriate to sustain the expansion.” While he didn’t explicitly use the words rate cut, it is clear that he’s talking about easing monetary policy.
Technically it should only be a matter of time before USD/JPY slips back below 108. EUR/USD is our favorite high beta currency because the ECB ruled out a rate cut last week. So minimally, we expect a move above 1.1350.
Trading Central – USDJPY: sentiment is a SELL TO 107.75 if BELOW 109.75.
Trading Central – GBPJPY: sentiment is a SELL TO 136.62 if BELOW 138.22.
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