BTMU manager of FX trading, Naohiro Nomoto, says that market focus has shifted to US' external policy
A summary of his views:
- Market focus before Mnuchin was monetary policy, now it's shifted to external policy (trade stance)
- Trump's agenda this year is external i.e. trade negotiations and currency is one of those tools
- If market becomes sensitive to trade friction and stocks fall, it will be a big blow to USD/JPY
- USD is top-heavy vs JPY, EUR - which are exporters to US
- Market players appear to want to sell USD on its upside
- Currencies of countries that import a lot from US like Canada or Mexico may weaken
- There is no sense in the market that USD/JPY is short
- This means the pair is vulnerable to further decline if BOJ hints at exit strategy
- USD/JPY to hold around 109 today after Trump comments
- EUR/USD at 1.25 will risk triggering more warning from ECB officials
- But will only see stronger signs of that if the EUR/USD rallies to 1.30
Quite a lengthy one but in summary, he's basically saying the dollar is still vulnerable to further declines and that the recent comments in Davos could be a change in the market landscape.
The focus at the start of the year has been about monetary policy, but now there could be a shift in market perception where the trade rhetoric will be one of the more important factors for this year.
