Archives of “Mitsubishi UFJ Financial Group” tag

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US dollar crash is virtually inevitable says Stephen Roach

  
  Analysis
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Roach is a former Morgan Stanley Asia chairman and is now a senior fellow at Yale University.

  • “The U.S. economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit”
  •  “The dollar is going to fall very, very sharply.”
Roach spoke in an interview with CNBC, called for a 35% fall in the dollar.
  • “These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead”
He has further reasons too, here is the link

USD/JPY: Intra-day range In 2019 narrowest since 1976; Where next? – MUFG

  
Analysis, Forex
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Can the low volatility continue?

MUFG Research discusses USD/JPY outlook and targets the pair at 107, 106, 105, 104 in Q1, Q2, Q3, and Q4 respectively.

“The intra-day high-to-low trading range for USD/JPY in 2019 was 7.6% – that’s the narrowest trading range since 1976 according to Bloomberg data. Taking the last three years the trading range has been just 13.5% underlining the remarkable stability of USD/JPY. 3mth ATM implied volatility fell to 4.99% in December, a record low underlining the conditions conducive to carry. These conditions helped keep the yen weak but failed to trigger any notable sell-off of the yen,” MUFG notes.

“In our view that is a reflection of underlying positives for the yen that will contribute to yen strength this year, even if financial market conditions remain relatively benign…We see limited upside for USD/JPY from current levels. The factors above will act to limit yen weakness. We do not assume any major risk-off event this year but the assassination of Qassem Soleimani in Baghdad on 3rd January is a clear near-term upside risk for the yen that has emerged as 2020 commences,” MUFG adds.

Dollar weakness among the trends to watch for next year – Morgan Stanley

  
Analysis, Forex
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Strategists at Morgan Stanley view that betting on a weaker dollar will be among the top trades for 2020

Dollar

In a client note detailing the trends to keep an eye out for next year, strategists at the firm view that the dollar is to be hit by stronger global growth outside of the US and dwindling portfolio inflows.

They argue that the greenback will fall against the pound, euro and kiwi dollar while also recommending to short the dollar against the Indian rupee in the EM space.
GBP/USD
Cable should “rally sharply by Q1 2020 as an orderly Brexit path becomes clearer, prompting foreigners to lift their GBP hedges and invest in undervalued GBP assets”. Target 1.40 in Q1 2020 before ending 2020 at 1.35.
EUR/USD
“Narrowing US-Europe growth differentials” and improving political factors should see the euro rally against the dollar. Target Q1 2020 and end of the year at 1.16.
NZD/USD
Recommends taking up a long position in the pair as they see Chinese and global growth improving. Target of 0.69 by mid-2020.

Next week brings the FOMC and BOJ meetings – forecast range for USD/JPY

  
Analysis, Forex
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A note via MUFG on the yen for the week ahead, analysts looking for 107/111 for USD/JPY.

On the Federal Open Market Committee meeting:
  • USD/JPY has already priced in a rate cut by the FOMC to some degree, so would not react much to a cut. If the Fed does defer on cutting rates, then the initial reaction would likely be USD buying, but stock price weakness would likely cap a rise by USD/JPY
And, on the Bank of Japan:
  • BoJ will maintain current monetary policy
  • BoJ Governor Kuroda commented in an interview that he expects a rate cut, so if the BoJ stands firm on policy, JPY may strengthen slightly but probably not continue. But if the BoJ does make some sort of policy change, JPY would initially weaken but not continue to do so because of concerns about side effects and continuity, and at some point USDJPY would lose steam. 
And, of course on a big driver:
  • Ultimately Brexit continues to loom and there will likely be little sense of direction despite some volatility.
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FOMC on the 30th, Wednesday next week.
BOJ on the 31st, Thursday next week.

Time to dust off the ‘hawkish cut’ outlook – September FOMC to lift the USD

  
  Analysis
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Morgan Stanley expect the sept September meeting of the Federal Open Market Committee to cut

  • by 25bp
  • But the dot plot published alongside is unlikely to show more rate cuts for the balance of 2019 and into next
  • expects confusing dots reflecting diversity of views on the committee
More:
  • ” …. FOMC materials are likely to be insufficiently dovish to meet the market’s lofty expectations”
  • “USD is likely to outperform on the day, particularly against risk-sensitive currencies like high-yielding EM FX and the dollar bloc” 
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