JPY Weakness Broadens, GBP Trades Higher

The FX trading was dominated by a fresh wave of Yen weakness overnight. USDJPY and its crosses rallied as the FinMin Aso stated that there has been no opposition against the Japan's policies in G20 meeting. The equity futures gained while JGB 10-year yields surged 2.5 basis points.

The markets started the day on positive sentiment. Gold recovered to $1424.94, while EUR and GBP advanced in the morning. Throughout the day, we remain cautious on the headline risk on the ongoing IMF and G20 meetings.

JPY Down on G20

In line with our expectations, the G20 meeting has not been harmful to Japan. There was nothing to worry about. Despite the commitment of G20 to avoid the competitive currency devaluation, Japan was not directly pointed out. Post-Tokyo session, the FinMin Aso reinsures that Japan policies did not see any opposition. The relief triggered a new wave of rally on USDJPY and JPY crosses.

The bullish trend momentum strengthened and the way is once again open to aim fresh highs on USDJPY. Our first target is 99.95 hit on April 11th, then 102.33 - Fibonacci 76.4% on June 2008 to November 2011 drop. As discussed previously, the exit from Japanese bonds has not been substantial so far. The massive JGB purchases from Bank of Japan have been a good reason to remain in Japanese bonds despite the weakening JPY. However, we expect the high volatility in JGB yields and the further JPY weakness to trigger an outflow out of Japanese bonds in the near future. Even a partial liquidation should reinforce JPY weakness in mid-to-long run.

US Data Disappoints

US data once again disappointed yesterday as Philadelphia Fed's Business Outlook deteriorated in April, while the leading indicator in March turned negative in March. The discussions on US recovery shifted the focus on more easing. Fed's Kocherlakota stated that the low rates are likely to be needed for years to come, while the anxiety on asset purchase tapering relieved. Fed's Bullard, seen as one of the less dovish voting members, said that Fed may buy more assets if the inflation continues to decrease. The data combined to comments triggered USD sell-off in NY.

GBP Still Bid

Yesterday, UK's Waele warned on the country's plunge into recession in the first quarter and said that more stimulus may be needed. In opposition, the Governor-designate Carney failed to give support to further easing stimulus in his speech yesterday. GBPUSD strengthened in reaction. Cable rebounded from its 50-day MA (1.5219) and the upside move was reinforced as USD sold-off on disappointing data in NY. Today, the GBP trades with positive bias. The key level is 1.5424 - Fibonacci 38.2% on February - March drop, if broken may bring GBPUSD higher. On the downside 1.5252 - 21dayMA - is expected to give support to the pair.

IMOH, Clement I.
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