USDJPY: Neutral outlook for the month - Westpac

Sean Callow, Research Analyst at Westpac, notes that the USD/JPY’s early-mid October surge from 101 to above 104 seems to have included plenty of fuel from speculators covering short positions.

Key Quotes

“CME JPY longs were almost halved in the week to 11 Oct. There is still fuel remaining but it should at least mean that positioning is less lopsided now.

The US dollar mood has cooled in recent days, with a range of softer data, including core retail sales and core CPI. This is probably going to remain the case short term, though pricing for a Dec hike should not slip far given consistent Fed rhetoric.

Yet attention should gradually return to the BoJ, with the new yield curve target likely to translate to slower JGB buying, adding to the suspicion that QE will be tapered over time. This leaves us with a neutral outlook on the week while retaining 102 over the month.”