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8 reasons to stay bullish targeting 112.20 ahead of 114 – BofA

Bank of America on USD/JPY

Bank of America on USD/JPY

Bank of America Global Research outlines 8 reasons for maintaining a bullish bias on USD/JPY into year-end.

1. JPY’s cyclical bottom has depreciated over time

2. Economic recovery is negative for JPY

3. Commodity bull market

4. Inflation = higher US real yield vs lower JP real yield

5. JPY’s weakness hasn’t been excessive vs other markets

6. Outward FDI could accelerate in 2H21

7. Positioning is not stretched JPY short positioning is not stretched.

8. Chart technical is bearish JPY,” BofA note.

We estimate USD/JPY’s upside targets at 112.20, the 114s and possibly 115.86. Late-2016/early-2017 highs in the 118s can’t be ruled out,” BofA adds.

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China says that timely use of RRR cuts will support real economy

Remarks by China’s Cabinet via state media

China
  • Will not resort to flood-like stimulus
  • Will keep monetary policy stable, increase policy effectiveness

Just be wary that when China issues such statements, they are usually to preempt the market that there might be possible decisions on said matter on the way.

There have been concerns as of late that policy support may be waning in China but officials have rebuffed that narrative in the past week or so, and this adds to that.

IMF’s Georgieva: There is risk of more sustained rise in inflation, which could require sooner policy tightening

Remarks by IMF president, Kristalina Georgieva

  • It is essential that US, other countries with accelerating recoveries avoid overreacting to transitory inflation pressures
  • Higher US rates could lead to sharp tightening of global financial conditions, leading to significant capital outflows from emerging economies
  • Monetary policy should remain accommodative in most economies and only tighten where inflationary pressures are high and expectations not firmly anchored
The IMF pretty much weighing on central bank policy although their voice has been relatively insignificant for the most part over the past few years, if not always.

European Commission raises 2021 GDP growth forecast from 4.3% to 4.8%

The European Commission releases its latest quarterly projections

  • Eurozone 2021 GDP growth forecast 4.8% (previously 4.3%)
  • Eurozone 2022 GDP growth forecast 4.5% (previously 4.4%)
  • Germany 2021 GDP growth forecast 3.6% (previously 3.4%)
  • France 2021 GDP growth forecast 6.0% (previously 5.7%)
  • Eurozone 2021 inflation forecast 1.9%
  • Eurozone 2022 inflation forecast 1.4%
There are mainly upward revisions to the report with regards to this year’s projections, with a bit of a mixed bag for next year. Of note, the commission underscores that they see upside risks to inflation and overall risks to the economy are balanced.

 

China’s state media says don’t bet on further declines for the yuan

An opinion article in China’s Economic Daily says that the yuan is “likely to maintain a two-way fluctuation”

  • And warns that  “market participants should not bet on a prolonged one-way decline”
The piece goes on saying supportive policy will be maintained, with an appropriate monetary environment
  • economic recovery is unbalanced
  • the global pandemic outlook remains uncertain
  • domestic inflation is moderate and controllable
And
  • yuan-denominated assets such as stocks and bonds continue to attract foreign investment
  • have large growth potential
On the USD:
  • appreciation may also be constrained, helping keep China-US rate spread stable, as the Federal Reserve will slow its policy normalization to prevent bursting asset bubbles
USD/CNH daily:
yuan chart