Rewind the clock to May last year and you'll find that we end up being roughly in the same situation as where we are now
USD/JPY was trading at around 109.50 in late May 2018 as it fell amid escalating trade tensions between US and China, while the dollar marched higher against the rest of the major currencies bloc. It's pretty much the situation we're seeing today and it's bringing back some memories of this interview with HSBC global head of strategy, David Bloom:
The only difference in my view is that the dollar has moved much higher from levels seen last year (so, room for further gains may be more limited) but the general fundamental issues that Bloom talks about still apply.
Yields in the US are still the most attractive proposition for investors despite the fact that they're falling off recently, because everywhere else is just doing worse.
It ties back to the rhetoric of the dollar being the best of a bad bunch but one critical difference that I must point out is that we're in a more advanced stage of the US-China trade dispute and the US economy isn't as robust as it was last year.
The Fed has already stopped tightening and Q2 economic projections suggest a considerable slowdown in the US economy, so that is a new equation that you have to factor into the US dollar when trading the almost similar situation one year ago today.
In my view, if this keeps up, the currency to watch is the Japanese yen and it will be the key focus with markets capitulating as we come to terms that the global economic slowdown is manifesting into something even more severe over the next few months.
