USD/JPY still expected to grind lower – Danske Bank

Kristoffer Lomholt, Senior Analyst at Danske Bank, sees the likeliness that the pair could test lower levels in the next months.

Key Quotes

“The Fed’s Janet Yellen is speaking later this week (Wednesday) and will most likely confirm a December hike, but this should provide only limited USD support as pricing has been significantly upped in recent weeks”.

“More important for USD may instead be whether Trump has gotten closer to a decision on the name of the next Fed Chair. Both Powell (a Yellen ally) and Warsh (a hawk in relative terms) had reportedly met with Trump regarding this issue recently and the President said on Friday that a decision would be made within two to three weeks”.

“Election risk premium has increased as the opposition parties’ new joint coalition gain s momentum and 3W implied USD/JPY volatility, which now includes the Election Day on 22 October, spiked 1.5pp this morning”.

“According to a poll from Kyodo News released over the weekend, 45.9% of respondents said Shinzo Abe was suitable to remain as Japanese Prime Minister, while 33% preferred Tokyo Governor Yuriko Koike. Election uncertainty has not yet affected the USD/JPY spot. However, we still see risks skewed to the downside for the spot”.