Morgan Stanley is switching its USD/JPY strategy to one of buying on dips, given that the latest data from Japan are coming in weak, contrasting with the US data strength.
“USD strength is broadening and, if market expectations for robust US data over the coming days are met, we expect the uptrend to be extended, especially as US front-end yields are pushing higher. Hence, we have extended our USD-bullish strategies to include USDJPY, where weak Japanese data are contrasting with the improvement in the US. We look to buy USDJPY dips,” MS clarifies the rationale behind this view.
“We believe that the extent of Japanese data weakness will be increasingly difficult for the BoJ to shrug off, and we expect market expectations for renewed monetary policy action to build once again, putting JPY under pressure and allowing USDJPY to push higher through the upper end of the recent range,” MS argues.
“The 200 DMA is now being tested in the 102.15 area, and a break above here would open the way to 103.00 initially,” MS adds.
In line with this view, MS runs a limit order to buy USD/JPY at 101.80 targeting 104, with a stop at 100.90.