Kit Juckes at Societe Generale sees no reason to fight the current low volatility trend or buy the dollar anytime through July and August. The market trends will be focused on European stagnation, Chinese slowdown fears and further falls in US unemployment after the Fed has finished tapering.
BNP see a move in USD/JPY and say that the likely outcome is higher for the pair as the BOJ engages in “financial repression” to shepherd any rise in JGB yields coming from Japan’s fiscal dynamics. They say a larger overshoot in the inflation rate in Japan would also see the yen weaken. They are sticking with their long at 101.85 looking for 105.50 and stop at 100.65.
Morgan Stanley have the volatility bug from this week and have added EUR/JPY shorts at 137.70 as they say that the activity in bonds and equity markets is starting to spread to currencies. As European periphery bonds are getting a bit crowded there may be some more liquidation on further fears of contagion from the bank problems in Portugal.
They went short at 137.70 with a stop at 139.30 and 132.50 target. They warn that the trade is at risk if the recent “wobbles” are short lived.
Those risks do look short lived at the moment given the bounce in stocks this morning, however the euro has just dropped through 1.36 once again and EUR/JPY is back to break even for Morgans.
European equities are just starting to lose a bit of shine though but the US may open up to match the relief seen in Europe.
