24 Mar 2015
Stay long USD/JPY in cash – JPM
FXStreet (Barcelona) - Paul Meggyesi of J.P.Morgan, views that USD/JPY might resume higher and hence suggests going long on the pair in cash and buying a 2-mo call at the strike price of 124.
Key Quotes
“We attribute the consolidation in USD/JPY to the relative stability in domestic monetary policy (the BoJ is doing enough QE to prevent USD/JPY backsliding but without any concrete expectation of QE3 to justify a renewed surge in USD/JPY) and a balance of near-term capital flows (GPIF-inspired equity outflows offset with seasonal corporate repatriation).”
“The corporate flow should eventually abate, and when it does we expect USD/JPY to resume a slow drift higher.”
“USD/JPY consequently is the one dollar trade where we see comparatively little risk in a cash position, but we add a RKO call as an overlay to better reflect the sense that there is now both a speed and distance-limit in USD/JPY. The speed-limit is determined by the Fed, the distance limit by the waning political appetite in Japan for evergreater currency weakness due to its adverse impact on consumers and importers.”
Key Quotes
“We attribute the consolidation in USD/JPY to the relative stability in domestic monetary policy (the BoJ is doing enough QE to prevent USD/JPY backsliding but without any concrete expectation of QE3 to justify a renewed surge in USD/JPY) and a balance of near-term capital flows (GPIF-inspired equity outflows offset with seasonal corporate repatriation).”
“The corporate flow should eventually abate, and when it does we expect USD/JPY to resume a slow drift higher.”
“USD/JPY consequently is the one dollar trade where we see comparatively little risk in a cash position, but we add a RKO call as an overlay to better reflect the sense that there is now both a speed and distance-limit in USD/JPY. The speed-limit is determined by the Fed, the distance limit by the waning political appetite in Japan for evergreater currency weakness due to its adverse impact on consumers and importers.”