– JPY prone to short-covering rally on broader risk-reduction
Given that uncertainty can remain with us for the next few weeks depending on whether a grand coalition could be formed (more below), EURUSD could remain under pressure. Our long EURUSD recommendation from 1.3180 is at risk, with the 1.2980 stop likely to be being triggered. However, the biggest impact on currencies could be JPY strength as the election outcome results in broad based risk reduction in positions. Equities are sharply lower and US treasury yields back down to early January levels. Short –JPY positioning remains the most lopsided position according to the results of our estimated FX positioning analysis (see chart below). Today Fed Chairman Bernanke testifies in front of the Senate Banking Committee (15:00 BST). We think he could use this appearance to clarify his stance for further purchases continuing well into 2014, and this could further remove some support the USD received last week.
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BNP Paribas