In a quiet week for US economic data releases, the main US event risk will likely be the release of the latest FOMC minutes from their meeting on the 17th-18th June, notes Bank of Tokyo-Mitsubishi UFJ (BTMU).
“However, it is unlikely that the minutes will provide much further insight into the Fed’s policy outlook on top of the already released statement, updated economic projections, and press conference by Fed Chair Yellen which followed their last meeting. The minutes will be even more backward looking following the release of the stronger than expected US employment report,” BTMU projects.
“We continue to believe that the market is underestimating the scale of Fed tightening that is likely in the coming years which will provide a more supportive environment for the US dollar as US yields eventually adjust higher,” BTMU adds.
This rise in US yields, according to BTMU, is increasing upside risks for USD/JPY which could provide a positive external catalyst for further renewed gains ahead.
“GBP/JPY has already regained upward momentum after breaking above key resistance at the 175.00 level over the last week, which was where the previous cyclical high from late year was located,” BTMU notes.
“With the Fed likely to follow the BoE in moving to tighten monetary policy later in 2015, USD/JPY is also likely follow GBP/JPY in regaining upward momentum later this year lifting the pair towards our year end target level of 106.00,” BTMU adds.