RBC – G10 Thematic Trade of the Week Long USD/JPY: FXWW

From the FXWW Chatroom – Last week’s long USD/JPY position is in the money and we are holding it for another week. USD/JPY has been holding up well, despite the equity sell-off. The longer that persists, the less reason for investors to hold long JPY positions as a “hedge” against risk off. We discussed why JPY is not acting as expected in several recent Charts of the Day (see November 13 and October 5). For the week ahead we’ll be watching Powell and Clarida, along with the Nov minutes (though dated by now) and personal income/spending numbers. With markets having rushed to price out Fed tightening for next year, the hurdle should be high for a further flattening of the US forward curve which would mean USD/JPY remaining supported by its outright yield differential and ongoing Japanese interest in unhedged bonds. On the spending side, our US economists are tracking Q4 real consumer spending at a still firm 2.8% and this week’s data may ease some of the more aggressive fears of a US data slowdown.
• Long USD/JPY at 113.24
• Target 115.50
• Stop 112.20

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