USDJPY rebound can continue if US rates’ volatility falls further
The non-farm payrolls report has to some extent reversed the uncertain market mood seen after Bernanke’s May 22 testimony. The USD is seeing an “orderly” increase against the core, low-beta G10 currencies (EUR, GBP, JPY and CHF) while equities (especially Nikkei) are recovering nicely. It’s almost as if stronger US growth outcomes have soothed concerns that the US economy may crumble under the existing market assumption of tapering being on the table. If the sharp fall in US bond market volatility (MOVE index) seen Friday persists, that may be sufficient to see both the Nikkei and USDJPY continue to trade higher tomorrow with the Bank of Japan meeting of secondary importance. Today, St. Louis Fed President Bullard (a voter) speaks, marking the last scheduled FOMC appearance prior to the June 18/19 Fed meeting. Bullard was quoted on the eve of the employment report noting that he continues to oppose tapering while inflation is slowing. We still think there is scope for a corrective rally in EURUSD and GBPUSD given our forecast for softer readings on US core retail sales (Thursday) and industrial production (Friday). But this may present opportunities to buy back the USD.
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BNP Paribas