USD and JPY could receive safe-haven bid today
The USD should receive a safe haven bid driven by re-rating of Chinese growth prospects and Bernanke’s Q/A comments. Overnight, China’s HSBC PMI for May contracted for the first time in seven months. Following Bernanke’s Q&A session yesterday, the S&P 500 closed lower while the US 2Y yield reached a new high (above 0.2450%). This combination in price action is a first, and was not seen earlier this year whenever you had FOMC minutes or other FOMC speakers hint at possibility of tapering. Given this has come from Bernanke himself, the markets could continue to keep USD bid in the short term. We do believe that the market has misinterpreted an out of context comment from Bernanke (what question did he answer?). But the next scheduled appearance for Bernanke to clarify his comments is on June 2, suggesting the markets could remain jittery. The JPY could also receive some support today especially on the crosses on a broader risk-off tone. The weekly ministry of finance data showed that Japanese investors repatriated their bond holdings. JPY 804bn was sold for the week following a net JPY 692bn being bought over the prior three weeks. This could spark some profit-taking on JPY-shorts today.
Click here to read the full report: FX Daily
BNP Paribas