Jackson Gap paves the best way for an additional leg decrease within the greenback – MUFG

The agency notes that along with his speech, Powell has reaffirmed that the Fed stance is softening as he acknowledged draw back dangers to employment and that it may materialise within the type of layoffs. As such, they see equally weak September jobs report to present the inexperienced mild for the Fed to begin reducing charges within the month forward.

In flip, that would sign the subsequent leg decrease for the greenback. That as coverage divergence begins to manifest in a much bigger approach since different central banks are much less dovish in the meanwhile. MUFG notes that the ECB and BOE are much less more likely to lower additional this 12 months amid stabilising progress and cussed worth pressures. As for the BOJ, the agency says that hypothesis is constructing that it may proceed again with price hikes by year-end.

On USD/JPY specifically, MUFG additionally argues a case on positioning play. That as the most recent IMM knowledge reveals that leveraged funds have been piling again on JPY shorts in current weeks. As such, positioning might be stretched and permits for a possibility to brief the pair amid the coverage divergence above.

This text was written by Justin Low at investinglive.com.