Deutsche Bank warn on the dip trade but have 2 reasons why it still might be good
Hot on the heels of their victory in predicting the miss in last week's payrolls number, DB has come up with 7 reasons why the short JPY trade may turn
1. Unravelling of the Abe QE trade.
2. USD/JPY lower forces the likes of Life Insurance companies to raise their low currency hedge ratios on their stock of foreign bonds.
3. An easing in capital outflows.
4. USD/JPY has gone lower in 5 of 7 the last Fed tightening cycles.
5. Obviously the few remaining local carry trades are likely to be extremely vulnerable.
6. We are still at the early stages in an unwind of the yen's competitiveness advantage, as NJA (Non-Japan Asia) FX stages a catch up.
7. Early technical signals. GBP/JPY has recently broken its major 2012 'BOJ QE' up trendline (And arguably the GBP has the closest linked cycle to the USD )
They have two "circuit breakers" for the above though
i) more BoJ QE (still seen as unlikely near term, although the rhetoric could shift if equities slide hard);
or ii) equities making a concerted turn higher. On the latter, how the Nikkei trades around the 2012 trendline that comes in near 17300 will be telling."
Certainly the action since the highs at 125 show that the dip buying is losing its steam but there's still a bit left in the Fed trade yet and if the supposed earlier comments from the BOJ grow in volume, then talk of extra QQE from Japan will keep the dippers happy
The story kindly came from our mates at Efxnews
