USD/JPY stepping back to recover stronger - SocGen

Olivier Korber, Research Analyst at Societe Generale, notes that the market is unwinding USD/JPY longs initiated on the premise of US reflation, a due breather which should extend until the market is convinced that the inflationary background will deliver its medium-term promise.

Key Quotes

“This will offer cheaper levels to reinstate fresh longs. The Treasury market remains too cautious regarding the Fed pace ahead, whereas the BoJ won’t tolerate exacerbated yen strength.”

“History may repeat itself. At the 2012-2013 year turn and at the end of 2014, the USD/JPY experienced a fast acceleration, then lost one-fourth of its gains, and finally bounced above the previous peak. The latest 2016 fast uptrend also happened at the end of the year and a correction is starting. A repeat of the past patterns would involve a fall to 112-113 in the near term, before bouncing back towards and probably beyond the recent 118 high.”