In their weekly strategy report, analysts at Citibank point out investors are concerned about US company earnings and economic outlook which increased the volatility of the market, favoring the yen. At the same time, they warn the rebound of US equity improved the market’s sentiment which limited the yen’s performance.
“The medium term outlook, remains highly uncertain at this stage and thus likely keeps markets volatile. Risks may be asymmetric to the downside. With the high correlation coefficient of JPY to the SPX still prevalent, we see scope for JPY appreciation heading into the summer, with any weakness capped by supportive current account dynamics. But the delta in yield differentials may stunt any aggressive JPY strength.”
“In short term, USDJPY bounced back from 106.90 and we could see the pair retest 200d MA at 108.30. However, a close below there would open the way for downside acceleration towards 104.50.”
“We are above consensus on their call for UST yields for the year end, the delta in yield differentials may stunt any aggressive JPY strength.”
“Even as signs of domestic USD funding stress show signs of abating, the market is a long way from reverting to normality and the ride seen bumpy near term.