USD/JPY to 95? TD says it is ‘very achievable even in the very short run’

USD/JPY to 95? TD says it is ‘very achievable even in the very short run’

TD Securities sees a case for the yen to strengthen on capital flows

That’s according to the firm’s North American head of FX strategy, Mark McCormick. He notes that weekly Japanese capital flow data is showing a nascent revival of foreign interest in the nation’s stocks, while onshore interest in overseas equities are waning.

In that lieu, he’s arguing that this is “the story that electrifies the yen through USD/JPY moving lower because capital is coming back to Japan”.

As seen from the data, he’s not exactly wrong as USD/JPY has tailed off towards the end of last year after portfolio outflows have turned around since November. Looking at it from a technical perspective though:

The upside in the pair last year ran into resistance from the 114.50 level once again, a level that has held on several occasions since 2017. Thereafter, price consolidated before a break of the 100-day MA (red line) precipitated a further decline back below 110.00 before the currency flash crash took place.

There is growing reasons to be more bullish on the yen to start the year and this is just one of it. Markets are still jittery on concerns of a further economic slowdown globally and with central banks holding off from normalising policy, it makes for a strong case for investors/traders to move towards defensive/safe assets.

Besides, the Japanese financial year will come to a close in March and in between now and then we could also see added flow into the yen based on repatriation of funds as well. The only real downside for the yen in the near-to-medium term is if US and China manage to strike a deal that at least puts a pause in the trade war, though that is still seen unlikely. If anything, we’re moving closer towards the 90-day period being extended as talks continue between the two parties.

The other danger for the yen is that it looks like most houses are calling for it to strengthen against the dollar towards 100.00 at the very least. When a consensus is that strong, it’s often not good for the currency as well. If there’s anything markets love, it’s a pain trade that is just waiting to happen.


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